Disentangling Investor Sentiment: Mood and Household Attitudes Towards the Economy

92 Pages Posted: 12 Feb 2016 Last revised: 7 Aug 2018

See all articles by Dimitrios Kostopoulos

Dimitrios Kostopoulos

Leibniz Universität Hannover

Steffen Meyer

University of Southern Denmark - Department of Business and Economics; Danish Finance Institute

Date Written: June 19, 2018

Abstract

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

Kostopoulos, Dimitrios and Meyer, Steffen, Disentangling Investor Sentiment: Mood and Household Attitudes Towards the Economy (June 19, 2018). Journal of Economic Behavior and Organization, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2731599 or http://dx.doi.org/10.2139/ssrn.2731599

Dimitrios Kostopoulos

Leibniz Universität Hannover ( email )

Königsworther Platz 1
Hannover, 30167
Germany

Steffen Meyer (Contact Author)

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

Danish Finance Institute ( email )

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