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We examine the connectedness of aerospace and defense companies and their relation to measures of geopolitical risk. With hierarchical clustering, we find stable and localized company clusters. Increasing geopolitical risk leaves these clusters intact but strengthens inter-cluster connectedness. Focusing on intraday data, we find that for most companies, instantaneous news arrival in form of jumps impacts realized volatility significantly. Further, we show that different measures of geopolitical uncertainty (GPR and COVOL) have differing impact on short-term predictions of intraday volatility, underlying the importance to distinguish between different sources of uncertainty. We provide evidence that investors react instantaneously to increases in geopolitical risk with some persistence of these shocks. The COVOL index holds significant informational content for short- and medium-term predictions of realized volatility of global aerospace and defense companies. • Aerospace and defense companies form localized clusters. • Increasing geopolitical risk increases the intercluster connectedness. • Different measures of geopolitical risks (GPR and COVOL) affect realized volatility predictions. • Instantaneous news arrival in form of volatility jumps are causally related to changes in geopolitical risk. • We provide evidence that investors react instantaneously to increases in geopolitical risk. [ABSTRACT FROM AUTHOR]

The use of text readability indicators and sentiment factors to asset pricing is practical in investment risk management yield pursuit. We analyzed the polarity of textual sentiment of Management Discussion and Analysis (MD&A) in 10-Ks for firms in the U.S. by constructing Sentiment Entropy, a new sentiment indicator based on L&M Dictionary, which captures the same characteristics of positive and negative emotions from the perspective of polarity. The empirical results show that the polarity of sentiments increases investment risk measured by return volatility, which differs from the traditional one-way emotion indicator. We found through a mediator effect test that emotional polarity significantly increases investment risk by stimulating large changes in trading volume, which is consistent with conventional wisdom. Challenging conventional findings, we find that positive and negative emotions in disclosures may have homogenous effects on the market, providing inspirations for understanding the role of textual sentiment on investor behavior. [ABSTRACT FROM AUTHOR]

This paper examines how overconfidence in financial literacy, as measured by MiFID test scores, impacts investors' trading behavior. Our theoretical model suggests that overconfident investors exhibit a higher demand for risky assets, potentially underperform compared to rational investors, and face higher transaction costs, thereby benefiting brokers. Furthermore, the impact of overconfidence intensifies with its level. We then test these propositions empirically using a unique brokerage dataset. Our findings reveal that overconfident investors engage in more frequent trading and incur higher transaction costs, with both effects increasing as overconfidence levels rise. However, we do not find evidence supporting the notion that they perform worse than rational investors. In fact, their performance tends to improve with higher levels of overconfidence. Additionally, we explore whether stress resulting from a mismatch between MiFID test scores and subjective financial literacy can mitigate the impact of overconfidence. Our data lends some support to this hypothesis. [ABSTRACT FROM AUTHOR]

In this paper, we statistically analyze how investors distribute their trading intensity to different securities in stock markets. We find that trade allocation distributions are distinctive between investors. More importantly, the patterns of trade allocation across securities are surprisingly persistent for each investor, even when there is a turnover of securities in their portfolios. This suggests that even if investors have security-specific strategies, the securities can be replaced by others while the strategies remain. We also find that time constraints do not appear to limit investors' activeness: the larger the set of securities an investor trades, the more frequently she trades each security on average. [ABSTRACT FROM AUTHOR]

Addressing environmental impact is increasingly imperative for individual investors and large financial institutions, making it a key objective of socially responsible investing. However, there is a noticeable gap in research on integrating sustainability and low-carbon considerations into machine learning-based portfolio optimization. To meet this challenge, this study introduces a Portfolio Emissions Sentiment Attention Aware Reinforcement Learning (PESAARL) model based on the Proximal Policy Optimization (PPO) algorithm to optimize a portfolio of Dow Jones Industrial Average (DJIA) stocks. PESAARL uniquely integrates environmental impact considerations, specifically carbon footprint using the firm level scope 1 and scope 2 emissions data, alongside firm-level investor sentiment and attention, into the investment decision-making process. Through multiple experiments, PESAARL demonstrates significant advantages, in terms of financial and environmental performance, over the benchmarks. [Display omitted] • We propose a new Portfolio Emissions Sentiment Attention Aware Reinforcement Learning model (PESAARL). • PESAARL balances portfolio profitability with environmental performance considering investor behavioral perspectives. • PESAARL allows to achieve competitive returns while minimizing the carbon footprint. • PESAARL outperforms the benchmark models. [ABSTRACT FROM AUTHOR]

• There is a positive relationship between tax avoidance news and a firm's stock price volatility. • Investor trading behavior amplifies the positive relationship we identified. • By discovering the antecedents of stock price volatility, we provide valuable suggestions for practitioners. This study investigates the relationship between tax avoidance news, investor behavior, and stock market performance in the Chinese financial context. Leveraging a comprehensive dataset spanning 2020–2023, we employ regression analyses and robustness tests to examine the impact of tax avoidance news on stock market performance. This quantitative empirical study addresses a significant gap in our understanding of the financial implications of tax avoidance news in China, highlighting its substantial influence on investor decisions and market dynamics. Key findings indicate that tax avoidance news leads to increased stock price volatility, moderated by investor trading behavior. This research contributes to the literature on taxation and financial markets by offering practical insights for policymakers, investors, and corporate entities. By understanding these dynamics, stakeholders can better navigate the complexities of financial markets and enhance corporate transparency and governance. The findings underscore the importance of effective communication and ethical practices in mitigating adverse market reactions, potentially influencing regulatory reforms and investment strategies. [ABSTRACT FROM AUTHOR]

We provide the first comprehensive study on the substitution effects between U.S. national lotteries and retail trading activities. Due to data limitations, prior studies are limited to evidence from local or international markets such as California, Taiwan, and Germany. Utilizing two unique U.S. datasets on retail trading activities, we provide convincing evidence of a substitution effect from large jackpots of U.S. national lotteries on retail trading. However, surprisingly, a reverse substitution effect from stocks exhibit significant gambling attributes on lottery participation is not observed. Thus, we uncover a puzzling phenomenon that the substitution effect only goes in one direction. • First in-depth study on the relation between U.S. lotteries and retail trading. • Two unique U.S. datasets to overcome limitations found in prior studies. • Find a clear substitution effect from lottery to retail trading. • A reverse substitution effect from stocks to lottery participation is not found. • The discovery of a one-directional substitution effect challenges existing theories. [ABSTRACT FROM AUTHOR]

• Impact of macroeconomic tail risk on individual stock idiosyncratic volatility. • Macroeconomic tail risk positively impacts stock idiosyncratic volatility. • Divergences of opinions among investors intensifies effects. • Effect only present in assets with positive macroeconomic tail risk beta. We explore whether macroeconomic tail risk (MTR) is contagious at the individual stock level. We find that macroeconomic tail risk exacerbates stock idiosyncratic volatility. An increase in macroeconomic tail risk by one standard deviation is associated with an average increase in idiosyncratic volatility by 5.10%. Further, divergence of opinion intensifies the macro to stock idiosyncratic risk contagion. Results show that the positive impact of macroeconomic tail risk on idiosyncratic volatility is only observed in assets with positive MTR beta, indicating that risk-averse hedging trading behavior of investors during macroeconomic downturns is the potential reason for the macro-individual risk contagion. [ABSTRACT FROM AUTHOR]

We investigate the influence of social interactions on asset markets and provide an empirical test of the hypothesis that social interactions increase asset pricing bubbles. We test the impact of social interactions on bubbles in a bubble-prone experimental asset-pricing market. Over a total of 21 markets, we compare asset pricing bubbles in a design that allows for social interactions with a standard laboratory setting. Markets that allow for face-to-face communication between participants in a lab-in-the-field setting show significantly larger asset pricing bubbles relative to standard laboratory markets. Face-to-face communication increases bubbles to a larger extend than a popular social media feature, the like. [ABSTRACT FROM AUTHOR]

• This paper examines the effect of financial advising on retail investor behavior. • The paper focuses on an Israeli reform, converting ETNs to ETFs. • Transactions swayed by advisors shifted between products following the reform. • Unadvised market participants' trading patterns did not change. • The shift is attributed to a change in the work routine of financial advisors. This paper examines the impact of financial advisors on retail investor behavior in response to an Israeli regulation converting ETNs to ETFs. Our findings demonstrate that transactions influenced by financial advisors shifted from ETNs to index funds following the reform, while unadvised market participants' tendencies did not change. This shift is attributed to the reform's cancellation of matched transactions, which changed the work routine for financial advisors. The results demonstrate that to be effectively implemented, financial reforms should consider their effect on market participants' workflows. [ABSTRACT FROM AUTHOR]

Using a novel brokerage dataset covering individual investors' login and stock trading behavior, we investigate the severity of the disposition effect as a function of attention. Our results show that more attentive investors trade less in line with the disposition effect, suggesting a comparative advantage in incorporating information into financial decision making. Furthermore, we find that high attention is related to a stronger tendency to sell moderate losses, as compared to large ones, while low attention increases an investor's likelihood to sell extreme, rather than moderate, profits. These results are in line with the theory of cognitive dissonance and saliency effects. [ABSTRACT FROM AUTHOR]

This paper evaluates the relationships between weather variables like humidity, temperature, air pressure, wind speed and status (clear, cloud, rain, haze and snow) with stock returns and volatility in the Greater China region's stock market. The study focuses on four stock exchanges; Shanghai and Shenzhen stock exchanges from mainland China, Hong Kong stock exchange and Taiwan stock exchange from Hong Kong and Taiwan respectively. Using the robust approach the best peer econometric model for each market was chosen. The results of the study depict that weather variables have a significant effect on Greater China's capital markets. We are able to analyze that in some cases the variable affects returns as well as volatility • Prior studies have proved that weather has emotional effects. • Finance scholars have shown that emotions related to investor decisions. • I provide evidence that local weather affects stock returns. • I also explore which weather variable most liable for said effect. • I find that said effect is at least fall in every stock market of Greater China region. [ABSTRACT FROM AUTHOR]

• I exploit a novel social trading setting to study trading patterns of investors in a social context. • I show that investors who receive attention of their peers are more excited about trading. • Investors receiving attention trade more frequently and are willing to take more risk. • While the trading intensity of investors reverts to previous levels when the initial excitement wears off, their risk appetite remains at an elevated level. I study the impact of peers showing interest in investors' trading on the latters' future trading activities. To this end, I investigate the trading patterns of investors who attract attention of their peers on a social trading platform. My empirical findings suggest that social traders who draw attention of their peers show an increased trading activity and are more willing to take risks. This finding may be explained by investors becoming more excited about trading once they receive attention from their peers. [ABSTRACT FROM AUTHOR]

Abstract Using unique data with the complete ownership structure of the German stock market, we study the momentum and contrarian trading of different investor groups. Foreign investors and financial institutions, especially mutual funds, are momentum traders, whereas private investors are contrarians. The disposition effect only partly explains the aggregate contrarian trading of private investors. We document a substantial increase in sales of past loser stocks by momentum traders during the market decline associated with the recent financial crisis 2007–2009. Evidence indicates that these excessive sales pushed prices below their fundamental value and are predictive of the momentum crash in 2009. Highlights • Foreign investors and financial institutions, especially mutual funds, are momentum traders. • Private investors are contrarian traders. • Sales of past loser stocks increase during the market downturn 2007–2009. • Trading by foreign investors and financial institutions predicts the momentum crash in 2009. [ABSTRACT FROM AUTHOR]

Highlights • We examine the relation between Facebook data and investors' decision making. • We use a unique investor-level shareholding registration data for all Finnish investors. • Trading of less sophisticated investors may be driven by Facebook data. • More sophisticated investors seem to behave independently from Facebook activities. Abstract Recent studies using data on social media and stock markets have mainly focused on predicting stock returns. Instead of predicting stock price movements, we examine the relation between Facebook data and investors' decision making in stock markets with a unique data on investors' transactions on Nokia. We find that the decisions to buy versus sell are associated with Facebook data especially for passive households and for nonprofit organizations. At the same time, it seems that more sophisticated investors—financial and insurance institutions—are behaving independently from Facebook activities. [ABSTRACT FROM AUTHOR]

Given the large amount of information available about companies and stocks, investors have to be selective about the information they process. This behavior is related to the attention effect. The aim of this paper is to investigate the relationship between a proxy of attention effect, media coverage, and the trading volume of the Brazilian stock market. The results show the trading volume is negatively influenced by news on previous “good days” and not influenced by news on previous “no good days”. In addition, less visible companies in the media are more susceptible to the attention effect when news is relevant. [ABSTRACT FROM AUTHOR]

Distinguishing investors into speculators and operators, and classifying the former group into momentum and contrarian investors, we develop a heterogeneous agent model (HAM) to examine the dynamics of price of second-hand dry bulk ships. The results suggest that momentum strategies based on short-term measures of earnings perform significantly better than the contrarian or passive (buy-and-hold) strategies. The HAM seems to capture the dynamics of vessel prices and the investors’ behavior in the market for ships very well. Finally, an increase in participation of momentum investors tends to increase price volatility, whereas higher demand from contrarian investors seems to lower price variability. [ABSTRACT FROM AUTHOR]

• This paper investigates the impact of fractional trading on non-professional investors' decision-making under risk. Using the expected utility framework, we show that with the option to buy a fraction of stocks or ETFs, the risk appetite of non-professional investors increases market participation and demand. • Fractional trading counters the risk-aversion behavior of non-professional investors, leading non-professional investors to invest more in the stock markets post introduction of fractional trading. It has positive implications as soon as it allows lower decile HHs to access high-priced stocks and give them an opportunity for portfolio creation and diversification. • Fractional trading democratizes investing. However, there are concerns around high volatility, change in the price-volume structure presented in the limit order books, and market collusion events coordinated through social media groups (e.g., Gamestop stock short squeeze event in Jan' 21). • Another important point to note is that even though fractional trading and commission-free trading applications are a breakthrough development that provides households with an option to participate in the stock market, it exposes them to risks associated with elementary training and professional traders playing against them. Moreover, these two developments could have created a perfect field for speculation based on news or expert opinions that these households do not even try to corroborate. We study the impact of fractional trading (FT) on non-professional investors' decision-making under uncertainty. Using the expected utility framework, we show that with the recent easiness to trade in stock markets and with the option to buy or sell a fraction of a share of a stock or ETF (exchange-traded fund), the risk appetite of non-professional investors might have gone up, increasing market participation and demand for stocks. Furthermore, we show that this change in the non-professional investor's risk aversion behavior varies by household income levels. Based on constructed probabilities, we estimate that approximately 83 billion dollars have been newly invested in stock market post-FT. Our results suggest that easy access to trade stocks and FT allows households with lower discretionary income a new tool to diversify their portfolio and participate in the stock markets by investing in different stocks and ETFs while at the same time having a significant impact on the stocks' price levels and price dynamics observed in the markets. [ABSTRACT FROM AUTHOR]

This paper offers a behavioral perspective on why Islamic capital markets are dominated by those financial instruments that almost replicate conventional financial products (i.e. Islamic debt bonds and Islamic equities). In contrast, the original Islamic instruments involving risk and return sharing (Musharakah) have failed to emerge. This paper argues that before the replicas, an investor's choice was simply between Islamic and non-Islamic instruments. Along with risk and return, compliance with Islamic principles or Shariah was an integral part of investor utility. As Shariah standards came to give legitimacy to other financial structures, the investors could then choose between various Islamic replicas and the original Islamic instruments. We argue that once the investor's intrinsic need for Shariah compliance is fulfilled, an instrument's risk-return features would become more important. So for loss averse investors with shorter evaluation periods, the loss sharing feature of the Islamic risk and return instruments (Musharkah) makes them less attractive than Islamic debt bonds. For longer evaluation periods, Islamic equities are also shown to outperform the risk and return (Musharakah) instruments. Using the S&P Islamic bond index for bond data and the Dow Jones Islamic Market World Index for Islamic equities, we confirm these views about investor utility by way of both loss aversion and habit based consumption models. The findings suggest that Islamic debt bonds and Islamic equities have been allowed to jointly crowd out the original Islamic risk and return (Musharakah) instruments. [ABSTRACT FROM AUTHOR]

Exchange traded funds (ETFs) are a multi-trillion dollar market that epitomizes financialization due to its recent growth. This study examines the behavior of U.S. listed currency hedged ETF investors towards changes in the underlying benchmark and foreign exchange rate from July 2011 to November 2015 using a panel VAR approach. We find that investors are able to anticipate changes in future exchange rates and invest in currency hedged ETFs prior to changes. Granger-causality tests confirm that these investors proactively trade before large real exchange rate movements. These results suggest that the use of financial instruments such as ETFs to hedge against exchange rate volatility may have itself become a source of volatility, which have implications for the further financialization of the ETF industry. [ABSTRACT FROM AUTHOR]

We investigate how investors trading in financial and real sectors of a stock market react to IMF announcements during abnormal times, such as a financial crisis. To do so, we examine the impact of IMF-program and negotiation news on financial and real stock sectors in Indonesia, Korea and Thailand during the Asian crisis using time-varying models. The results indicate that IMF actions affect sector returns differently suggesting different wealth effects of IMF programs on investor wealth. [ABSTRACT FROM AUTHOR]

Investor behavior has a pivotal role in price dynamics. The aim of this study was to explore the characteristics and patterns of the investor behavior and network structure behind. The investor behavior propagation model was proposed, which described the intrinsic dynamic mechanism of stock market and had a good fit to the real data. It was found that the Nearest-neighbor coupled network and the disassortative network can depict the investing behavior network precisely. Combining these two aspects, the Nearest-neighbor coupled network with hub nodes was constructed. Performance was superior to other network structures and suggests that the Nearest-neighbor coupled network with hub nodes is more consistent with the real investor networks. • An investor behavior propagation model is constructed from price dynamics and epidemic model. • Some characteristics of propagation behavior in the investor network are discovered. • The propagation dynamic mechanism of stock market is revealed. • Nearest-neighbor coupled network with hub nodes is more consistent with the real investor network. [ABSTRACT FROM AUTHOR]

Cleantech ventures working on radical hardware-, material-, and chemical-based innovations have a particularly high potential to disrupt currently unsustainable production and consumption systems. Such ventures, however, typically have long development times with high risk and high capital demand, and consequently have difficulties securing sufficient capital to bridge the "valley of death" between basic research and commercialization. Extant research has explored a great variety of success factors for cleantech ventures, but have not provided sufficient resolution on levers for action that can positively influence the investor perceived risk return ratio when considering investments in early-stage, radical cleantech ventures. With a mixed-methods approach, we analyze investment decisions from 45 of the most prominent, early-stage cleantech investors and venture-investing experts in the EU and the USA. Using ex-post analysis of past investment decisions, we analyzed factors that have previously influenced investor decision making, which we then used to extract 27 levers that can either derisk or increase the return of investments in radical, cleantech ventures. We further validated these 27 levers by presenting them to investors, linked to an ex-ante, standardized investment scenario. This allowed us to gather the first data on the relative effectiveness of these levers. The article's contribution to theory is the development of a multi-actor confluence framework – the "who, what, and how" of influencing investor perceived risk-return ratio for early-stage, radical cleantech investments. The main contribution to practice is a "hands-on overview" for implementing these levers to accelerate capital deployment for cleantech innovation. [ABSTRACT FROM AUTHOR]

We find that individual investors who use technical analysis and trade options frequently make poor portfolio decisions, resulting in dramatically lower returns than other investors. The data on which this claim is based consists of transaction records and matched survey responses of a sample of Dutch discount brokerage clients for the period 2000–2006. Overall, our results indicate that individual investors who report using technical analysis are disproportionately prone to have speculation on short-term stock-market developments as their primary investment objective, hold more concentrated portfolios which they turn over at a higher rate, are less inclined to bet on reversals, choose risk exposures featuring a higher ratio of nonsystematic risk to total risk, engage in more options trading, and earn lower returns. [ABSTRACT FROM AUTHOR]

Highlights: [•] Professionals are overconfident both in the general and financial domains. [•] The risk professionals are willing to take on is positively influenced by overconfidence. [•] Forecasted standard deviations have no strong influence on the risk-taking behavior of professionals. [•] Professionals are unable to make consistent predictions about future stock prices. [Copyright &y& Elsevier]

Abstract: We argue that existing explanations for the stock-market investor''s disposition to “ride losers too long” are unsatisfactory because they abstract from any role for information processing. We propose instead that the disposition effect is a special case of “waning vigilance:” investors pay less attention to new information and analysis when making decisions about loss makers and are therefore slower to sell them when arguments in favor of holding cease to be valid. Results from a Thai individual investor survey are presented as empirical evidence in support of the hypothesis that vigilance is reduced following losses. [Copyright &y& Elsevier]

Abstract: Anecdotal evidence suggests and recent theoretical models argue that past stock returns affect subsequent stock trading volume. We study 3,000 individual investors over a 51 month period to test this apparent link between past returns and volume using several different panel regression models (linear panel regressions, negative binomial panel regressions, Tobit panel regressions). We find that both past market returns as well as past portfolio returns affect trading activity of individual investors (as measured by stock portfolio turnover, the number of stock transactions, and the propensity to trade stocks in a given month). After high portfolio returns, investors buy high risk stocks and reduce the number of stocks in their portfolio. High past market returns do not lead to higher risk taking or underdiversification. We argue that the only explanations for our findings are overconfidence theories based on biased self-attribution and differences of opinion explanations for high levels of trading activity. [Copyright &y& Elsevier]

Abstract: This paper jointly analyzes traditional and behavioral concepts in a simple experimental setting which allows for the assessment of the relative importance of each factor and their joint behavior. Various hypotheses are tested in three portfolio choice models. Markowitz [Markowitz, H., 1952. Portfolio selection. Journal of Finance 7, 77–92] findings are analyzed and extended by behavioral concepts and socio-demographic variables. Models are expressed as conjoint choice models represented by a multinomial logit model. Data is collected in an experimental setting. We show that the level of the risk-free rate, an individual''s risk aversion, market sentiment, self-assessed financial expertise, age and gender are determining factors of portfolio choice. [Copyright &y& Elsevier]

Abstract: This paper studies the dissemination of performance information in the mutual fund industry. We document a hump-shaped lag pattern for the reaction of mutual fund flows to past performance, i.e., we find that very recent performance is less important than performance several months ago. We attribute this pattern to the presence of less sophisticated investors that update performance information only infrequently. In the 1990s the effect is observed for all funds, but is especially pronounced for highly marketed funds. For the 2000s, we find a substantial increase in the overall probability of investors timely updating mutual fund performance information. As a result, the hump-shaped flow–performance lag pattern disappeared for all but the highly marketed funds. [Copyright &y& Elsevier]

We ask whether a firm''s choice of IPO price is informative in the sense that it relates systematically to the firm''s other choices and characteristics. We find that both institutional ownership and underwriter reputation increases monotonically with the chosen IPO price level. We also find that the relationship between IPO price and underpricing is U-shaped. In contrast, post-IPO turnover displays an inverted U-shaped relation to IPO price. Moreover, firms choosing a higher (lower) stock price level experience lower (higher) mortality rates. Our results are robust to controls for market liquidity and firm size, and for partial adjustment of IPO prices based on pre-market information. [Copyright &y& Elsevier]

The portfolio flows of institutional investors are widely known to be persistent. What is less well-known, however, is the source of this persistence. One possibility is the ‘informed trading hypothesis:’ that persistence arises from autocorrelated trades of individual investors who believe they have information about value and who face an imperfectly liquid market. Another possibility is that there are asynchroneities with respect to investment decisions across funds, across investments, or both. These asynchroneities could be due to wealth effects (across investments for a single fund), investor herding (across funds for a single investment), or generalized contagion (across funds and across investments). We use daily data on institutional flows into 21 developed countries by 471 funds to measure and decompose aggregate flow persistence. We find that the informed trading hypothesis explains about 75% of total persistence, and that the remaining amount is attributable entirely to cross-fund own-country persistence. While asynchroneities across funds investing in the same country are important, asynchroneities across countries, either within a given fund, or across funds, are not important. The cross-fund flow lags we identify might result from different fund investment processes, or from some funds mimicking others'' decisions. We reject the hypothesis that wealth effects explain persistence. [Copyright &y& Elsevier]

The portfolio flows of institutional investors have been found to be highly persistent across countries and individual investment funds. This paper investigates the source of this persistence in emerging market equities. We employ the decomposition methodology in NBER Working Paper no. 9079 (July 2002), which decomposes the persistence of flows into four components: (i) own-country, own-fund persistence (which might arise from informed trading within each country by individual funds); (ii) own-country, cross-fund persistence (which might arise from asynchronicities across funds); (iii) cross-country, own-fund persistence (which might arise from asynchonicities within a fund) and (iv) cross-country, cross-fund persistence (which might arise from other reaction lags—such as contagion—across both countries and funds). We find evidence that all four components are positive in emerging markets. Our results differ from those in developed countries, in that we attribute approximately 10–20% of total persistence to cross-country effects (iii) and (iv). These findings are consistent with stories of contagion, which suggest that demand shifts move predictably from one country to another. They cannot easily be explained by informed trading alone or by wealth effects. [Copyright &y& Elsevier]

• Investors' sentiment is composed of distinguishable elements. • Experiencing happiness is associated with flows to mutual funds. • When considering funds' investment style, heterogeneous effects arise. • Happiness correspond with flows to growth funds but not value funds. Investors' sentiment is typically proxied by aggregate measures. However, it is composed of distinguishable elements, including impermanent emotions and subjective appraisals of well-being. We show that experiencing transient happiness is associated with flows to mutual funds in the following month. When considering funds' investment style, heterogeneous effects arise. Happiness and perceived well-being correspond with flows to growth funds but not value funds. Ultimately, broad measures of sentiment may conceal nuances of investor behavior, which can potentially affect asset prices through investment style preferences. [ABSTRACT FROM AUTHOR]

• The different effects of COVID-19 on the stock markets are identified. • The stock market return is partitioned into returns from two different channels; returns due to expected growth and returns due to updation of market risk premium. • The interplay between the effects of COVID-19, the panic effect, and the stringency of the lockdown effect, and the channels of the returns are studied. • Panic is found to impact the stock market returns through the market risk premium updation channel. • Lockdown stringency is found to have a two-way effect on stock market returns, reducing it through the growth channel but increasing it through the market risk premium updation channel. This paper isolates the different effects of COVID-19 on the stock market returns and identifies the channels through which each of the effects influences the returns. Using a sample of twelve countries with most liquid stock markets, we find that the panic caused by the pandemic affects the stock return negatively through the updation of market risk premium channel. The stringency of the lockdown has a two-way effect on the stock market returns, whereas it affects the return negatively through the updation of growth forecasts, it also affects the return positively through the updation of market risk premium. [ABSTRACT FROM AUTHOR]