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Is the grass always greener on the other side? Investor regret and equity returns in developed yet illiquid markets

Author

Listed:
  • Le, Anh Tuan
  • Nguyen, Harvey
  • Nguyen, Cuong
  • Hu, Baiding

Abstract

Why do some investors regret their investment decisions, while others do not? Using comprehensive data from developed but relatively illiquid markets, where limited trading activity and fewer investment opportunities can magnify the emotional impact of past decisions, we show that an investment strategy going long on high-regret stocks and short on low-regret stocks generates significantly positive risk-adjusted monthly returns of 1.79% in Australia and 0.70% in New Zealand. The results suggest that regret affects investors’ utility, with regret-averse investors avoiding stocks that generate high regret, as these investments reduce their utility more than others. Consequently, high-regret stocks earn higher future returns in equilibrium. The regret factor is unique and cannot be explained by other well-documented factors. Overall, our findings offer more insights into the evolving role of behavioral factors and soft information in financial markets, helping investors gain a better understanding of the intriguing, yet underexplored, regret premium.

Suggested Citation

  • Le, Anh Tuan & Nguyen, Harvey & Nguyen, Cuong & Hu, Baiding, 2026. "Is the grass always greener on the other side? Investor regret and equity returns in developed yet illiquid markets," Finance Research Letters, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:finlet:v:100:y:2026:i:c:s1544612326005398
    DOI: 10.1016/j.frl.2026.110010
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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