Disentangling Investor Sentiment: Mood and Economic Expectations
70 Pages Posted: 12 Feb 2016 Last revised: 15 Jul 2017
Date Written: July 13, 2017
In this paper, we disentangle investor sentiment into two components: mood and economic expectations. 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 (MOOD). We match MOOD with trading data of German individual investors. We find that when MOOD is high (positive mood), investors purchase more, particularly trading into risky and out of less-risky securities. To proxy for economic expectations, 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
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