Emotional Finance: As A New Approach To Understanding The Markets

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Dumanlı A. N., AREN S.

Journal of Life Economics, vol.8, no.2, pp.173-183, 2021 (Peer-Reviewed Journal)

  • Publication Type: Article / Article
  • Volume: 8 Issue: 2
  • Publication Date: 2021
  • Doi Number: 10.15637/jlecon.8.2.03
  • Journal Name: Journal of Life Economics
  • Journal Indexes: ABI/INFORM, Index Islamicus
  • Page Numbers: pp.173-183
  • Yıldız Technical University Affiliated: Yes


The emotional finance theory was developed as an alternative to the mainstream theories which claim that markets are driven by

investors’ conscious processes. Based on psychoanalysis, it searches the role of both conscious and unconscious processes in investment

decisions. It offers new explanations regarding the causes and forecasting of the crises and bubbles that have been experienced frequently

especially since the 2000s. In this framework, it makes use of concepts such as narrative, group feel, states of mind, and phantastic

object, which have not been previously included in finance studies to date. This study represents the most comprehensive literature

study carried out in the field of emotional finance to date. It analyses and models the fundamental components of the theory in the

context of their determinants and effects. It offers findings to help market regulators, fund managers and investors understand the

bubbles that occur in the markets.