The Impact Of Positive Sentiment On Stock Market

Investor sentiment as an important part of behavioral finance,has been used to explain the influence of irrational investors on the capital market by more and more scholars. How to measure the investor sentiment better and the impact that investor sentiment on the stock market earnings trends has become the focus of controversy. Psychology experiment shows that movies could have impact on human's emotions. Positive mood has been repeatedly shown to affect risk attitudes in laboratory settings, where subjects' exposure to movie clips is among the most widely used and effective mood-induction procedures. So if the positive investor sentiment induced by comedy movies could play a role in the stock market? There are two theories account for this issue: affect infusion model(AIM) and mood-maintenance hypothesis(MMH). The AIM argues that happy moods foster risk-prone behavior, whereas the MMH takes the opposite stance. Unlike previous traditional research methods of watching a movie or video in a laboratory, this paper takes the network ticket data of comedy moviegoers across the major cities in China as a sentiment variable and studies the investor sentiment's affection on returns and trading behavior in stock markets caused by comedy movies. More specifically, we exploit the time-series regression in the domestic theatrical release of comedy movies as a natural experiment for testing the impact that positive mood(proxied by comedy movie attendance) has on investment in risky assets(proxied by the performance of the China stock market on the following day). To control for unobserved factors that may contemporaneously affect movie attendance and equity returns, we employ the percentage of theater screens dedicated to the comedy genre as an instrument. The empirical results show that people get continuous sentiment from watching movies and positive sentiment triggered by comedy movies produces negative effects on stock returns and has no impact on trading behavior, which support the MMH. Additional, we employ comedy moviegoers from eighteen cities in China as investor sentiment proxy to investigate the impact of mood changes on returns of locally headquartered listed companies. The returns of locally headquartered stocks were negative significantly when comedy movies were screened in these cities, which support the mood maintenance hypothesis. It provides further evidence for home bias anomaly in capital markets.