Mood, Firm Behavior, and Aggregate Economic Outcomes

66 Pages Posted: 25 Mar 2015 Last revised: 18 Oct 2018

See all articles by Vidhi Chhaochharia

Vidhi Chhaochharia

University of Miami - Department of Finance

Dasol Kim

Office of Financial Research, US Department of the Treasury

George M. Korniotis

University of Miami; Miami Business School; University of Miami - Behavioral Decision Making Cluster

Alok Kumar

University of Miami - School of Business Administration

Date Written: July 18, 2017

Abstract

This study examines whether mood affects the aggregate state-level macroeconomy through its impact on firm-level decisions. Using sky cloud cover as a proxy for mood, we show that mood affects the economic expectations of small business managers. After relatively sunnier periods, managers have more optimistic expectations, and the component of their expectations related to mood influences hiring and investment decisions. Consequently, mood affects state-level job creation and new business starts, especially during periods of greater economic uncertainty. These results suggest that mood-induced economic expectations influence firm-level managerial decisions and state-level macroeconomic fluctuations.

Keywords: Cloud cover, mood, small business managers, firm investment behavior, managerial optimism, state-level business cycles

JEL Classification: G30, E32, E44

Suggested Citation

Chhaochharia, Vidhi and Kim, Dasol and Korniotis, George M. and Kumar, Alok, Mood, Firm Behavior, and Aggregate Economic Outcomes (July 18, 2017). Available at SSRN: https://ssrn.com/abstract=2584491 or http://dx.doi.org/10.2139/ssrn.2584491

Vidhi Chhaochharia

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Dasol Kim (Contact Author)

Office of Financial Research, US Department of the Treasury ( email )

717 14th Street, NW
Washington, DC 20220
United States

George M. Korniotis

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-5728 (Phone)

Miami Business School ( email )

University of Miami - Behavioral Decision Making Cluster ( email )

5250 University Drive
Coral Gables, FL 33124
United States

Alok Kumar

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

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