Disentangling Investor Sentiment: Mood and Household Attitudes Towards the Economy
92 Pages Posted: 12 Feb 2016 Last revised: 7 Aug 2018
Date Written: June 19, 2018
In this paper, we disentangle investor sentiment into two components: mood and household attitudes towards the economy. We apply acoustical analysis to the daily top ten of music downloads in iTunes for Germany to derive a novel and direct measure for mood. We match this novel mood index with trading data of German individual investors. We find that when mood is positive, investors purchase more, particularly trading into risky and out of less-risky securities. To proxy for household attitudes towards the economy, we use an already existing index (FEARS), which bases on Google search volumes of negative economic terms. We find that FEARS drives trading in the same fashion as in previous studies and that these effects significantly depend on mood. We conclude that there are two sources of sentiment driving individual investors, which significantly interact.
Keywords: individual investor; trading behavior; sentiment; mood; music; financial markets
JEL Classification: D03, D14, G02, G11
Suggested Citation: Suggested Citation