Stock Market and the Psychological Health of Investors

Forthcoming in Financial Review

87 Pages Posted: 24 Feb 2024 Last revised: 29 Feb 2024

See all articles by Chang Liu

Chang Liu

Ball State University - Department of Finance and Insurance

Maoyong Fan

Ball State University - Department of Economics

Date Written: February 18, 2024

Abstract

Utilizing a national individual-level medical dataset and the home bias in investment, our study shows a strong and robust link between declines in local stock returns and increased antidepressant consumption among investors. This effect intensifies in areas with higher per capita dividend income, suggesting a direct relationship between higher stock ownership and stronger responses. We confirm that portfolio losses, not local economic conditions, are responsible for increased antidepressant usage during market downturns. Using the frequency of psychotherapy sessions yields similar findings. Moreover, our study supports the loss aversion hypothesis as we find positive stock returns do not influence antidepressant usage.

Keywords: Individual Investors, Stock Market, Psychological Health, Antidepressant, Psychotherapy, Prospect Theory, Home Bias

JEL Classification: G10, G18, G40, I10

Suggested Citation

Liu, Chang and Fan, Maoyong, Stock Market and the Psychological Health of Investors (February 18, 2024). Forthcoming in Financial Review, Available at SSRN: https://ssrn.com/abstract=4730831

Chang Liu

Ball State University - Department of Finance and Insurance ( email )

Muncie, IN 47306-0340
United States

Maoyong Fan (Contact Author)

Ball State University - Department of Economics ( email )

Whitinger Business Building, room 201
2000 W. University Ave.
Muncie, IN 47306-0340
United States
765-285-5741 (Phone)

HOME PAGE: http://https://sites.google.com/site/maoyongfan/home

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