Michael M. Dowling

The Role of Feelings in Investor Decision-Making

An acoustic lens device is provided for use in facilitating oral communication in a space which is acoustically challenged. The lens device includes at least one acoustic reflector for positioning proximate to a dashboard of a passenger portion of a transport vehicle. The reflector is formed by an upper portion with an ellipsoidal surface obtained when an ellipse having two foci on an axis extending in a substantially vertical direction is rotated about the axis. In consequence, the upper portion encloses at least one of the two foci such that each of the at least one reflectors is disposed at a predetermined distance from the other with parallel axes. The first loci is disposed such that voice signals emitted from the mouths of persons seated in the front passenger compartment are directed from the first foci to the device. Accordingly, a sound pressure of a voice signal reaches the axis of the at least one reflector and is focused by the device and directed to the second focus in the back passenger portion.

Sentiment in Oil Markets

Sentiment is shown to influence both West Texas Intermediate (WTI) and Brent futures prices during the period 2002–2013. This is demonstrated while controlling for stock indices, exchange rates, financial costs, inventory and supply levels as well as OPEC activity. Sentiment indices are developed for WTI and Brent crude oils using a suite of financial proxies similar to those used in equity research where the influence of sentiment has already been established. Given the novel nature of this study, multiple hypothesis testing techniques are used to ensure that these conclusions are statistically robust.

Profitability and investment factors for UK asset pricing models

Two recent asset pricing models share a common core of the addition of profitability and investment as factors, but differ in implementation. We adapt these models for the UK and argue that the Fama–French five-factor profitability factor offers the most potential.

Mood and UK equity pricing

We investigate the relationship between mood and UK equity pricing. Seven variables that are argued to proxy for mood are tested, including four weather variables (temperature, precipitation, wind speed and geomagnetic storms), and three biorhythm variables (Seasonal Affective Disorder, Daylight Savings Time Changes and lunar phases). Using GARCH specifications of the equity indices, and multiple constructs of each of the mood-proxy variables, we find evidence of a relationship between UK equity pricing and high temperatures and wind speed. However, the results are generally unfavourable towards a conclusion that investor mood influences aggregate UK equity pricing.

Influences from the European Parliament on EU Emissions Prices

The decisions of the European Parliament (EP) are shown to influence both EU emission allowance (EUA) prices and volatility. Reductions in price and increases in volatility are observed when EP decisions are (i) not “party-political” in origin, (ii) made during times of low market sentiment, or (iii) made during times of low market attention. Daily EUA prices from 2007 to 2014 are used in the study, with decisions analysed using an event study approach for price impact, and a GARCH specification for volatility impact. Our findings suggest the need for policymakers to improve communication of long-term strategies for the EUA market. This aims to reduce the evident ongoing uncertainty experienced by traders around each decision made by the EP. The finding that sentiment and market attention at the time of an EP decision influences the markets reaction indicates a need to consider market dynamics in terms of decision timing, so that market turbulence is not an unintended by-product of an EP decision. Some form of medium term forward guidance may be called for.

Behavioral Influences in Non-Ferrous Metals Prices

Recent research has identified the presence of behavioral influences on traders in predominantly professionally traded markets such as oil, gold, and foreign exchange. Previous research had largely confined behavioral-based investigations to equity markets due to an assumption that noise traders would drive any influence and these traders were mainly absent from the professionally traded markets. This paper extends this research to the non-ferrous metals markets and demonstrates similar influences on prices. It is shown that psychological price barriers, where there is predictable trading patterns around psychologically important price points, are important. Specifically, lead, zinc, and aluminium alloy, show anomalous price reactions in the days particularly following a breach of a

CEO social status and acquisitiveness

1,000 price point. There is also evidence presented of negative price clustering before key price barriers. Subperiod tests further indicate that the relevant psychological price point is dependent on average prices. Recognizing the multiple hypothesis testing nature of the study, generalized Bonferroni corrections are implemented to provide a robust control for the possibility of data mining. This represents a first investigation of behavioral influences in non-ferrous metals prices, and suggests these markets are not immune to trader biases influencing the setting of prices.

Individual Values and Household Finances

Purpose - The paper aims to examine whether and under what circumstances social status of chief executives can be associated with corporate financial decisions, in particular via risk aversion or risk loving to the extent of mergers and acquisitions. Design/methodology/approach - The authors use mixed methods, drawing metrics of social status (acquired and ascribed) from anthropological and sociological research, applying these, and then using panel econometrics to check the statistical importance of the uncovered relationships. Findings - The authors find in the paper that it is possible, for FTSE companies, to successfully measure and apply measures of social status from public records; they find strong evidence of a negative relationship between CEO ascribed and achieved social status and his or her acquisitiveness. However, the influence of achieved status appears to be more consistent and significant than that of the ascribed status, indicating its dominant role in determining overall attained status. Research limitations/implications - The research is limited in its data coverage, to FTSE members. However, it does show that it is possible to take useful and meaningful concepts from areas quite removed from traditional finance and to incorporate these into a traditional finance methodology. Practical implications - The paper has practical implications for both aspirant and existing corporate officers and for investors. Social implications - Social status is omnipresent and poorly understood as a mitigator or enabler of financial transactions, although there is some evidence that it is important. Originality/value - This research bridges a gap that has heretofore only been very sparsely mapped, and provides suggested routes for further research.

Cultural Behavioral Finance in Emerging Markets

ABSTRACT We create individual cultural values measures for households and show that this is an important determinant of their financial behaviour. To date, personal cultural values have only been indirectly measured through religion and trust. But these are, at best, an approximation of true cultural values. Applying a holistic framework from the World Values Survey (WVS), we create individual measures of cultural values, and show that the self-expression values of this framework are positively associated with households’ financial decisions. Examining the individual cultural values that make up the WVS model, we further show that happiness, trust, and playing an active role in society, are individually important determinants of household financial decision-making. Our study shows that cultural values can be brought from a generalized national level to the individual level in order to improve our understanding of household financial decision-making.

Robust weak-form efficiency tests in volatile European equity indices

Emerging market asset pricing research has historically applied a behavioral understanding of investor decision making based largely on US investor psychology research and therefore inherently focuses on what we understand about how US investors make investment decisions. This is likely to be both a psychologically and a culturally inappropriate perspective on emerging market investment decision making. In this chapter, we comprehensively review the recent literature on behavioral and cultural perspectives of emerging market asset pricing. We further suggest, building from this comprehensive review of relevant theories and empirical research, an approach to the application of investor psychology in emerging markets where certain investor behavioral theories are assumed to predictably vary across cultures, certain theories apply more to some cultural groups, and some behavioral principles are best viewed as innate and static across cultures.