Summary:
In China, the low participation of households in the financial market and the concentrated asset allocation hinder social development. Understanding individual investors' investment decisions is of crucial importance in behavioral and household finance, but due to data limitations, the literature examining individual investors' investment decisions at the personal level is scarce. With the arrival of the big data era, with increased access to big data, and recent technological progress, enriched micro-level data is providing a new opportunity to expand research on individual investors. Therefore, we combine both marketing and financial theories and study the impact of leisure consumption on fund investment. Our study applies mood theory in this context and enriches the toolbox of policymakers. Specifically, this paper reveals the impact of leisure consumption on individual investment decisions. According to the psychological theories of “mood congruence” and “mood retention,” a positive mood affects individuals' expectations of investment returns and risks and thus influences their investment decisions. Based on the theory that “hedonic” consumption affects individual feelings, this paper proposes that the happy mood induced in investors immediately after leisure consumption leads to them having optimistic expectations of investment returns and encourages them to increase their investments in mutual funds. Our empirical exercise involves a large set of panel data on individuals who bank with one large bank in Asia, and includes detailed records of their consumption in a department store and their fund investments. We examine the impact and mechanisms of leisure consumption on the households' mutual fund investments using this data set. Specifically, we find that the current-week leisure consumption increases the likelihood of next-week fund investment by more than 50% and raises the amount invested by more than 30%. Further analyses reveal that the investment increase primarily involves low-risk assets such as bonds. Heterogeneous effects on gender and wealth levels are also explored. Based on our findings, we propose the following four policy recommendations. First, integrating consumption with financial scenarios is a new direction for digital financial development. Financial institutions can enhance the effectiveness of their customer acquisitions and provide personalized services by promoting data sharing and collaborative engagement with individual investors. Second, promoting leisure consumption can serve as a policy tool to increase capital market liquidity. By encouraging leisure activity consumption and altering the emotional state of individual investors, an increase in investment behavior can be stimulated. In turn, this provides greater liquidity to the market and reduces systemic risks. However, it should be noted that leisure consumption-induced investments are not superior to general investments, as they only increase investment willingness without improving investment returns. Third, enhancing policies designed to upgrade consumption can contribute to targeted governance. By improving these policies and establishing scenario-based finance, the spillover effects of consumption in financial scenarios on residents' investments can be explored. Fourth, to avoid investment losses, it is crucial to enhance households' awareness of investment risks, especially in the case of small and medium-sized investors with low financial literacy and limited personal wealth. Regulators should protect and educate investors through improving the understanding of their investment logic. The contributions of this paper are as follows. First, as a new exploration of the integration of consumption with financial scenarios, this paper demonstrates the potential improvement in households' participation in the financial market through this integration. Moreover, we find that engaging in appropriate leisure consumption can lead to an increase in residents' investment in funds. This novel finding expands the understanding of individual investors' behavior and offers valuable insights to the government to enhance residents' participation in the financial market and optimize asset allocation. Second, this paper uncovers the underlying reasons for the aforementioned behavioral pattern: the positive impact of leisure consumption on individual investors' emotions and their optimistic outlook on investment returns. This discovery is in line with the theory of affective congruence and provides empirical support for the influence of emotions on investment within the field of behavioral finance research. Third, we find that the investment growth resulting from leisure consumption predominantly focuses on low-risk funds, validating the significance of the risk level as a boundary condition that regulates the influence of emotions on investment behavior.
许泳昊, 刘玉珍, 厉行. 休闲消费与居民资产配置——基于情绪理论的分析[J]. 金融研究, 2023, 519(9): 168-187.
XU Yonghao, LIU Yu-jane, LI Xing. Leisure Consumption and Household Asset Allocation: An Analysis Based on Mood Theory. Journal of Financial Research, 2023, 519(9): 168-187.
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