Emotional State and Market Behavior
We consider the relationship between trader emotions and asset market behavior. We create experimental asset markets with the structure first studied by Smith, Suchanek, and Williams (1988), which is known to generate price bubbles and crashes. To track traders’ emotions in real time, we analyze participants’ facial expressions with facereading software before and while the market is operating. We find that a positive emotional state correlates with purchases and overpricing. Fear correlates with selling, low prices, and price decreases. The experiment confirms the intuition that emotions and market dynamics are closely related.
|Keywords||Emotions, Bubbles, Experiment, Facereader|
|JEL||Design of Experiments (jel C9), Asset Pricing (jel G12)|
|Journal||Review of Finance (Print)|
Breaban, A., & Noussair, C. (2017). Emotional State and Market Behavior. Review of Finance (Print), 1–31. Retrieved from http://hdl.handle.net/1765/116029