Research on the mood in sustainable investment decisions

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Research published by Adrian Fernandez-Perez , Senior Research Fellow in Finance, Auckland University of Technology, Alexandre Garel, Researcher in Finance, Audencia and Ivan Indriawan outlines that there are two competing theories when it comes to examining the role of mood and sustainable investment, as quoted by The Conversation.

“The first is based on the idea that sustainable assets are generally less risky. In this sense, assets that are considered completely or mostly sustainable have been shown to outperform less sustainable assets in crises, as investors see them as more trustworthy and having fewer structural, legal and reputational risks. This theory is also based on the idea that a lower mood leads to more risk-averse behaviour. That is, when someone is sad, depressed or angry they tend to become more cautious when making investment decisions and choose investments with lower risk.”

Investing in sustainable assets requires the evaluation of more factors than investing in traditional assets which makes the decision-making process more complex but also more individual with respect to social factors.

The Conversation: “A second and competing theory is based on the idea that a positive mood promotes prosocial behaviours and greater altruism. Investors with lower mood tend to focus on themselves and less about others. As such, they have less preference for sustainable investments.

Happier investors, on the other hand, may be more altruistic and favour sustainable investments because it benefits others (for example, community, workmates and the environment).

Research published by Adrian Fernandez-Perez, Alexandre Garel and Ivan Indriawan has tested these theories, documenting evidence consistent with investors’ greater risk aversion.”

Read an article on the research report here 

The Conversation

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