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Investor emotions and asset prices

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Bin Hasan, S. ORCID: https://orcid.org/0009-0001-4827-1964, Kumar, A. and Taffler, R. (2025) Investor emotions and asset prices. Financial Analysts Journal, 81 (3). pp. 122-149. ISSN 1938-3312 doi: 10.1080/0015198X.2025.2509485

Abstract/Summary

We develop a new emotion-based market-level sentiment indicator to measure the emotional state of the market. Using this aggregate series, we compute firm-level sensitivity to shifts in market-level emotions and find that stocks with high-emotion betas outperform low-emotion beta firms. This performance differential is corrected in about six months. A trading strategy that takes a Long (Short) position in high- (low-) emotion beta stocks generates an annualized alpha of over 6%. This evidence of emotion-based predictability is distinct from the known pricing effects of mood, traditional sentiment measures, economic and policy uncertainty, and tone.

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Item Type Article
URI https://centaur.reading.ac.uk/id/eprint/122581
Identification Number/DOI 10.1080/0015198X.2025.2509485
Refereed Yes
Divisions Henley Business School > Finance and Accounting
Uncontrolled Keywords Investor emotions, market emotion index, emotion beta, investor sentiment, return predictability.
Publisher Taylor & Francis
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