How Mood and Cues Regarding Information Subjectivity Influence Investor Effort to Process Financial Information

Investors frequently make judgments and decisions in the presence of affect (i.e., mood or emotion). Investors' moods may influence the extent to which they incorporate available financial information in their investment judgments. I propose that investors interpret their moods as signals of the extent to which financial information should be processed to make investment judgments, but only when other, more direct signals regarding the need for in-depth processing are unavailable. Consistent with research in psychology, my experimental results suggest that investors experiencing positive mood exert less effort to process available financial information than investors experiencing negative mood. Consequently, positive mood results in lower-quality financial judgments in my setting. However, when investors receive cues suggesting that initially received information is subjective, the effect of mood on effort to process financial information is mitigated. Overall, my results suggest that factors associated with positive investor mood (e.g., positive market sentiment) reduce the depth of investor analysis and lower judgment quality absent signals regarding the subjectivity of financial information.