The findings revealed that lack of sleep conjured more negative emotions, and distorted positive emotional experiences.
For example, children found less enjoyment in positive things after just two nights of inadequate sleep.
They were also less reactive to positive things, and less likely to remember the details of a fun experience.
These tendencies faded when they had enough sleep.
It means that, on a long-term scale, children with less sleep would not have a strong bank of positive memories to draw from.
According to Alfano's research, sleep and emotional development are inextricably linked.
She warns that parents need to treat sleep and the child's emotional future as seriously as they do dental hygiene or nutrition.
"Healthy sleep is critical for children's psychological well-being," Alfano said.
"Continually experiencing inadequate sleep can eventually lead to depression, anxiety and other types of emotional problems.
"Parents, therefore, need to think about sleep as an essential component of overall health in the same way they do nutrition, dental hygiene and physical activity.
"If your child has problems waking up in the morning or is sleepy during the day, then their nighttime sleep is probably inadequate.
"This can result for several reasons, such as a bedtime that is too late, non-restful sleep during the night or an inconsistent sleep schedule."
The investigation, funded by the National Institute of Health, is ongoing as they seek to explore a wide range of issues that impact on a child's emotional state in later life.
More than $120 billion a year is spent on depression- and anxiety-related disorders.
Doctors recommend that newborns aged under four weeks should sleep 16 hours a day.
Up to the age of 12 months, they can sleep between 14 and 15 hours a day.
Children aged between one and three years old should sleep 12-14 hours a day.
From three to six, that figure can be cut to 10-12 hours a day.
And children aged between seven and 12 should sleep at least 10 hours a day.
Once they hit 12, children can sleep eight hours a day, like adults.