Listen to the Music – The Impact of Music on Individual Investors

Author: Dimitros Kostopoulos (Leibniz Universität Hannover), Steffen Meyer (Leibniz Universität Hannover)

Title: Listen to the Music – The Impact of Music on Individual Investors

Abstract: We apply textual and acoustical analysis to the daily top 10 of music downloads in iTunes in Germany to derive a novel and direct measure for investor sentiment, which we call (music) MOOD. Controlling for investor -- and market-specific factors, we find that good MOOD has a significantly negative effect on the trading activity of households. However, conditional on trading, when MOOD is positive, investors purchase more and invest into riskier securities. Effects are more pronounced for less sophisticated, female and older investors. We alleviate concerns of reverse causality by showing that MOOD leads the stock market, but not vice versa.