The impact of social mood on financial markets

This thesis presents three empirical papers that explore the extent of UK social mood on UK stock indexes. The first paper utilises mobile, broadband, landline and pay TV complaints as an extra factor in an augmented-CAPM setting. Using time series OLS, this study finds empirical evidence that people who complain about actual or perceived mobile or broadband service failure experience catharsis, as increased mobile and broadband complaints lead to increased excess returns for smaller indexes and reduced excess returns for larger indexes. By contrast, results show that people who complain about landline and pay TV experience frustration, as increased landline and broadband complaints lead to increased excess returns for larger indexes and lowered excess returns for smaller indexes. In the second paper, wine, beer, spirits and cider receipts are used in Granger causality tests, VARs, and then impulse response tests. Using time series, this paper finds empirical evidence of mood enhancement through alcohol consumption – this is because an increase in wine, beer, spirits or cider consumption precedes a lowering of FTSE trading volume, which is consistent with the Mood Maintenance Hypothesis. Furthermore, an increase in beer consumption leads to an increase in smaller company index returns, which is consistent with the sentiment literature. Contrary to the existing literature, impulse response test results indicate that FTSE returns, or changes in trading volumes, have an insignificant impact on UK social mood measured by alcohol. The final paper makes use of Google searches for music genre to develop a novel Music Search Index (Music Index). Using The Music Index level and its rate of change on daily and monthly data, this paper finds evidence of mood affecting the FTSE through mood management. Mood management works by impacting peoples’ search for music (cognitivism) in order to find music that will extend or modify their current mood (emotivism).