The Role of Company Affect in Stock Investments: Towards Blind, Undemanding, Noncomparative and Committed Love

Jaakko Aspara A · Henrikki Tikkanen

63 citations0/0 files storedJournal of Behavioral Finance

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Financial Markets and Investment Strategies Decision-Making and Behavioral Economics Financial Literacy and Behavior

Abstract

This conceptual article aims to increase our understanding of the influence that individuals’ affective evaluations of companies have on their decisions to invest in companies’ stocks. Based on various psychological literatures, the authors explicate five different ways in which an individual investor's positive affect toward a company may influence his decisions to buy/hold the company's stock. These include a positive influence that company affect has on optimism and overconfidence about the financial returns expected from the company's stock, as well as a negative influence on the required financial returns from the stock. The authors illustrate the influences with “love” metaphors.

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References

1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1988Possessions and the Extended Self 1980Feeling and thinking: Preferences need no inferences.1965The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets 1998Consumers and Their Brands: Developing Relationship Theory in Consumer Research 1962Toward a Psychology of Being 1975THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]1936The General Theory of Employment, Interest and Money, by John Maynard Keynes

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