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Anchoring and Risk Factors

Author

Listed:
  • Levon Goukasian

    (Seaver College, Pepperdine University, Malibu, California, United States,)

  • Emily Jian Huang

    (College of Business, California State University, Chico, California, United States.)

  • Qingzhong Ma

    (College of Business, California State University, Chico, California, United States.)

  • Wei Zhang

    (College of Business, California State University, Chico, California, United States.)

Abstract

Profitability and investment are becoming the new focus of empirical asset pricing. We examine the extent to which their return predictability is attributable to investors’ tendency to anchor on 52-week high. Based on a return decomposition methodology developed by George, Hwang, and Li (2014), two profitability measures (operating profitability, return on equity) and two investment measures (asset growth and investment to assets) are entirely attributable to anchoring. These results survive a battery of robustness checks and hold largely in various subsamples. The findings send a warning that these two potential risk factors could be attributed to the anchoring bias.

Suggested Citation

  • Levon Goukasian & Emily Jian Huang & Qingzhong Ma & Wei Zhang, 2021. "Anchoring and Risk Factors," International Journal of Economics and Financial Issues, Econjournals, vol. 11(4), pages 82-96.
  • Handle: RePEc:eco:journ1:2021-04-10
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    References listed on IDEAS

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    More about this item

    Keywords

    Profitability; Investment; Anomaly; Anchoring; Return decomposition;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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