Sentiment versus mood: a conceptual and empirical investigation

Abstract

Purpose The purpose of this paper is to investigate whether sentiment and mood, which are distinct theoretical concepts, can also be distinguished empirically. Design/methodology/approach Using a sample of German small-cap stocks and linear techniques, the effect of sentiment and mood on short-term abnormal stock return following earnings announcements is tested separately. Findings Mood tends to be a positive factor in predicting short-term abnormal stock return, as its biologically based impact uniformly affects the risk aversion of all market participants. Notably, negative mood influences stock return significantly negatively. Sentiment is no factor, however, as its cognitively based impact affects only unsophisticated investors, namely, their cash-flow expectations. Research limitations/implications As the sample is restricted to small-cap stocks from a single stock market and only two proxies of sentiment and mood, respectively, are used, the findings should be generalized with caution. Future research might investigate other markets and employ different proxies of sentiment and mood. Practical implications Market participants should be aware of the different effect of sentiment and mood on stock return and adjust investment strategies accordingly. Social implications As sophisticated investors are likely to profit from the irrational behavior of unsophisticated investors, who are prone to sentiment, the financial literacy of retail investors should be enhanced. Originality/value This paper is unique in distinguishing between sentiment and mood, both theoretically and empirically. Such distinction was largely ignored by related past research.

The Influence of Research Reports on Stock Returns: The Mediating Effect of Machine-Learning-Based Investor Sentiment

“…Behavioral financial scientists believe that emotions influence investors' judgments and decision-making, and so does sentiment [75]. Although the reasons and mechanisms of the effect of investor sentiment on stock returns are not very clear, researchers agree that the behaviors of investors are influenced by their emotions, cognitive limitations, and biases so that their behaviors cannot be completely rational [75][76][77][78]. To investigate the effect of investor sentiment on stock returns, researchers have used various kinds of measures, which can be divided into three categories, i.e., survey-based indicators or direct measures (e.g., the American Association of Individual Investors, Investors Intelligence), market-data-based indicators or indirect measures (e.g., adjusted turnover rate, buy-sell imbalance, BW index), and text-based indicators (e.g., investor sentiment derived from social media) [20,54,79].…”

Individual differences matter : personality traits and preferences in smallholders’ farm management

“…Similarly, Van Gelder (2007) suggests that perceived tenure security is a two-fold concept, being decomposed into a cognitive ''thinking'' state (perceived probability of risk) and an affective ''feeling'' state (fear of risk). A similar cognition-emotion system has been distinguished in the field of behavioural finance to explain people's investment decision-making process in financial markets (Rapp, 2019;Rick & Loewenstein, 2008;Shiller, 2002). Nonetheless, most existing research on land tenure tends to see perceived tenure security as either a purely cognitive or a purely affective state.…”