Investor Emotions and Speculative Bubbles

52 Pages Posted: 29 Jan 2021

See all articles by Richard Taffler

Richard Taffler

University of Warwick - Finance Group

Xijuan Angel Bellotti

Middlesex University

Vineet Agarwal

Cranfield University - School of Management

Linglu Li

affiliation not provided to SSRN

Date Written: November 22, 2020

Abstract

Between June 2005 and October 2007, when it peaked, the Chinese stock market rose five-fold. It then went into free fall losing 70% of its value over the following year, more than China’s total GDP. A similar trajectory played out between July 2014 and January 2016.This paper describes the powerful emotions unleashed during market crises of this nature. Specifically, we adopt a five-stage path-dependent model relevant to other bubbles and financial crises and test this empirically using the Chinese 2005-2008 stock market bubble as a case study. Results are consistent with investors experiencing a range of highly-charged emotions directly inter-related with different market states. Our evidence suggests that if we wish properly to understand and explain such destructive events we also need to recognise the vital role investor emotions play in their aetiology.

Keywords: investor psychology, emotional finance, phantastic objects, financial media, textual analysis

JEL Classification: G01, G02

Suggested Citation

Taffler, Richard and Bellotti, Xijuan Angel and Agarwal, Vineet and Li, Linglu, Investor Emotions and Speculative Bubbles (November 22, 2020). Available at SSRN: https://ssrn.com/abstract=3745234 or http://dx.doi.org/10.2139/ssrn.3745234

Richard Taffler (Contact Author)

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain
+442476524153 (Phone)
+442476523779 (Fax)

Xijuan Angel Bellotti

Middlesex University ( email )

The Burroughs
London, NW4 4BT
United Kingdom
0208-411-5705 (Phone)

HOME PAGE: http://www.mdx.ac.uk/aboutus/staffdirectory/xijuan_bellotti.aspx

Vineet Agarwal

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom
00 44 (0) 1234 754543 (Phone)
00 44 (0) 1234 752554 (Fax)

Linglu Li

affiliation not provided to SSRN

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