Individuals’ Affect-Based Motivations to Invest in Stocks: Beyond Expected Financial Returns and Risks

Abstract

While there has been a growing interest in the role that company affect plays in investment decisions, there have been few empirical examinations of the issue. The specific purpose of this article is to provide empirical evidence of whether an individual investor’s affect towards a company provides the investor with extra motivation to invest in the company’s stock, beyond its expected financial returns and risk. The authors examine survey data collected from four hundred individual investors that had recently invested in certain companies’ stocks. The finding is that most investors had certain affect-based, extra motivation to invest in those stocks, beyond their expected financial returns. Explaining the extra investment motivation beyond the expected financial returns, the authors find that the more positive an individual’s attitude towards the company, the stronger was his extra investment motivation. The authors also find that a special type of affective relationship that an investor may have towards a company - affective self-affinity - further explains his extra motivation to invest in the company’s stock, beyond its financial returns.

Keywords: investor psychology, individual investor, affect, attitude, affective self-affinity

JEL Classification: D11, G10