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Investor trading behavior and intermediate prospect theory value in cross-sectional expected returns

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  • EOM, Cheoljun
  • EOM, Yunsung
  • PARK, Jong Won

Abstract

This study demonstrates that investor trading behavior influences the positive relationship between past intermediate prospect theory value (PTV) based on 12-month return distributions and expected returns. The predictive power of intermediate PTV portfolios is mainly driven by individual investors’ high trading activity, with foreign investors also contributing to it. Their effect arises from the opposite position: individuals show net selling (buying) in a high (low) PTV portfolio, whereas foreigners do the reverse. These patterns suggest that foreign investors’ trades align with the PTV’s predictive signals, unlike those of individuals. These findings offer behavioral insights into return predictability and provide a foundation for future investor-focused research.

Suggested Citation

  • EOM, Cheoljun & EOM, Yunsung & PARK, Jong Won, 2026. "Investor trading behavior and intermediate prospect theory value in cross-sectional expected returns," Research in International Business and Finance, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:riibaf:v:83:y:2026:i:c:s0275531926000218
    DOI: 10.1016/j.ribaf.2026.103294
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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
    • G40 - Financial Economics - - Behavioral Finance - - - General

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