Positive mood has been repeatedly shown to affect risk attitudes in laboratory settings, where subjects' exposition to movie clips is among the most widely used and effective mood-induction procedures. Yet, conflicting lab results about the estimated sign of the mood effect have led researchers to formulate two alternative theories. The affect infusion model (AIM) argues that happy moods foster risk-prone behavior, whereas the mood-maintenance hypothesis (MMH) takes the opposite stance. In this paper I test the predictions of these two theories using real-world financial data and focusing on the same mood-shifting mechanism commonly employed in lab studies. More specifically, I exploit the variation in the audience for comedy movies in the U.S. as a natural experiment for testing the impact that happy mood (proxied by weekend comedy movie attendance) has on investment in risky assets (proxied by the performance of the U.S. stock market on the following Monday). My hypothesis rests upon the evidence that individual investors are more likely to ponder trading decisions during the weekend and trade on Mondays. To address the self-selection of moviegoers into different movie genres (e.g. comedy), and to control for unobserved factors that may contemporaneously affect movie attendance and equity returns, I employ the percentage of theater screens dedicated to the comedy genre as an instrument. Using a sample of data from 1995 to 2010, I estimate that an increase in comedy attendance on a given weekend is followed by a decrease in equity returns on the subsequent Monday, which supports the MMH.
Gabriele M. Lepori is Assistant Professor of Finance at Copenhagen Business School, Denmark. He has been on the faculty since 2008, after receiving a PhD and MA in economics from Michigan State University. He holds a MSc in economics and international finance and a BA in business economics from the Catholic University of Milan, Italy, where he was born. He teaches corporate finance in the Master's program and Bachelor program at CBS. Previously, he taught money and banking, microeconomics, and macroeconomics in the undergraduate program at MSU. His research interests currently cover behavioral finance, international finance, and applied econometrics. His recent work on behavioral finance has been cited in The Economist, The Wall Street Journal, Foreign Policy, and Corporate Board Member.