The Role of Feelings in Investor Decision-Making

28 Pages Posted: 22 Mar 2005

See all articles by Brian M. Lucey

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Sydney Business School; Ho Chi Minh City University of Economics and Finance

Michael M. Dowling

ESC Rennes School of Business

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Abstract

This paper surveys the research on the influence of investor feelings on equity pricing and also develops a theoretical basis with which to understand the emerging findings of this area. The theoretical basis is developed with reference to research in the fields of economic psychology and decision-making. Recent advancements in understanding how feelings affect the general decision-making of individuals, especially under conditions of risk and uncertainty [e.g. Loewenstein et al. (2001). Psychological Bulletin 127: 267-286], are covered by the review. The theoretical basis is applied to analyze the existing research on investor feelings [e.g. Kamstra et al. (2000). American Economic Review (forthcoming); Hirshleifer and Shumway (2003). Journal of Finance 58 (3): 1009-1032]. This research can be broadly described as investigating whether variations in feelings that are widely experienced by people influence investor decision-making and, consequently, lead to predictable patterns in equity pricing. The paper concludes by suggesting a number of directions for future empirical and theoretical research.

Suggested Citation

Lucey, Brian M. and Dowling, Michael M., The Role of Feelings in Investor Decision-Making. Available at SSRN: https://ssrn.com/abstract=685165

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
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+353 1 679 9503 (Fax)

University of Sydney Business School ( email )

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Australia

Ho Chi Minh City University of Economics and Finance ( email )

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6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Michael M. Dowling

ESC Rennes School of Business ( email )

Rue Robert d'arbrissel, 2
Rennes, 35000
France

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