Designing a model to explain the impact of investors' emotions on financial decisions, stock returns and economic volatility

Document Type : Original Article

Authors

1 Ph.D. Candidate in Accounting, Department of Accounting, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran.

2 Assistant Prof., Department of Accounting, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

3 Assistant Prof., Department of Accounting, Shahin Shahr Branch, Islamic Azad University, Isfahan, Iran.

4 Assistant Prof., Department of Accounting, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran.

Abstract

The change in stock price is not only affected by the intrinsic value provided by accounting information, but also by the behavior of investors, which is referred to as investor sentiment. If the investor's feelings originate from false mental beliefs and irrelevant information, it may cause wrong predictions and market price fluctuations; Therefore, investors' feelings can affect the stock market and its events, because investors usually invest with an optimistic or pessimistic attitude towards the future. This study aims to develop and evaluate a model that looks for the impact of investors' emotions on financial decisions and stock returns and economic fluctuations in companies listed on the Tehran Stock Exchange. This research is based on the purpose of basic research. To test the hypotheses, a multivariate regression model was used and then they were analyzed using EViews and Stata software. It is a statistic that the sample size is equal to 105 companies according to the screening method and after removing outlier observations. In this research, panel data with fixed effects have been used. The results of this research show that personality traits have an effect on people's transactional behavior and investors' performance and their investment performance, and there is a significant positive relationship between investor's feelings in financial decisions and stock returns. Also, other results of the research show that more transactions are done in the stock exchange in periods when investor sentiment is optimistic and the market is in recession

Keywords

References

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Financial Management Perspective
Volume 12, Issue 40
February 2023
Pages 145-171

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