Investor sentiment significantly influences market reactions and individual investment decisions. Evidence shows that individual investors often rely on sentiment-driven cues rather than purely fundamental information, which leads to systematic biases and deviations from rational decision-making. Understanding the determinants of investor sentiment and how it shapes investment behaviour is essential for academics and practitioners seeking to evaluate market efficiency and investor performance.

This paper critically reviews empirical literature examining how emotional factors such as fear, mood variation, and external influences (e.g., weather or social events) impact investor behaviour and stock investment decisions. The review shows that emotions interact with cognitive biases to influence market movements and investor actions, often leading to herding effects and suboptimal investment choices.