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Greed and fear are supposed, together with herd instinct, to be the three main emotional motivators of stock markets and business behavior, and one of the cause of bull markets, bear markets and business cycles.

From a market saying to an academic research topic

The phrase, traditionaly used by traders and market commentators, has become a topic of economic research about investor irrationalities (cognitive and emotional biases). Its effects on market prices and returns contradict, or at least moderate, the efficient market hypothesis.

Here are two examples of approaches:
  • How those two alterning emotions work for traders, and how they can distort their decision process, has been the subject of neuroeconomics studies (1). More generally, those researches show some primacy of emotion over cognition in decision making.
  • According to Hersh Shefrin, one of the key researchers in Behavioral economics, the phrase hope and fear, although less colloquially used, would describe better those alterning excessive expectations by market players (2)((citation needed}}

See also

References

Greed is the selfish desire for or pursuit of money, wealth, food, or other possessions, especially when this denies the same goods to others. It is generally considered a vice, and is one of the seven deadly sins in Catholicism.
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Fear is an emotional response to impending danger, that is tied to anxiety. Behavioral theorists, like Watson and Ekman, have both suggested that fear, along with a few other basic emotions (e.g., joy and anger), is a trait innate to most higher functioning organisms.
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Herd behaviour describes how individuals in a group can act together without planned direction. The term pertains to the behaviour of animals in herds, flocks, and schools, and to human conduct during activities such as stock market bubbles and crashes, street demonstrations,
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Motivation is a reason or set of reasons for engaging in a particular behavior, especially human behavior as studied in psychology and neuropsychology. The reasons may include basic needs (e.g.
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In investing, financial markets are commonly believed to have market trends[1] that can be classified as primary trends, secondary trends (short-term), and secular trends (long-term).
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In investing, financial markets are commonly believed to have market trends[1] that can be classified as primary trends, secondary trends (short-term), and secular trends (long-term).
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The business cycle or economic cycle refers to the fluctuations of economic activity about its long term growth trend. The involves shifts over time between periods of relatively rapid growth of output (recovery and prosperity), and periods of relative stagnation or decline
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In finance, the efficient market hypothesis (EMH) asserts that financial markets are "informationally efficient", or that prices on traded assets, e.g., stocks, bonds, or property, already reflect all known information and therefore are unbiased in the sense that they reflect the
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Neuroeconomics combines neuroscience, economics, and psychology to study how we make choices. It looks at the role of the brain when we evaluate decisions, categorize risks and rewards, and interact with each other.
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emotion is a "complex reaction pattern, involving experiential, behavioral, and physiological elements, by which the individual attempts to deal with a personally significant matter of event.
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Decision making is the cognitive process leading to the selection of a course of action among variations. Every decision making process produces a final choice. It can be an action or an opinion. It begins when we need to do something but know not what.
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Behavioral finance and behavioral economics are closely related fields which apply scientific research on human and social cognitive and emotional biases to better understand economic decisions and how they affect market prices, returns and the allocation of resources.
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An emotional bias is a distortion in cognition and decision making due to emotional factors.

That is, a person will be usually inclined
  • to believe something that has a positive emotional effect, that gives a pleasant feeling, even if there is evidence to the contrary.

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