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Representativeness Heuristic in Stock Market: Measurement and Its Predictive Ability

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  • Jun Xie
  • Nan Hu
  • Bin Gao
  • ChunZhi Tan

Abstract

This paper measures representativeness heuristic by the irrational part of time-varying Hurst exponent, and empirically tests the validity of measurement including its predictive ability for one-month-ahead excess return in the Chinese stock market. Our preliminary analyses suggest that the representativeness heuristic is a “new” firm-specific characteristic and is possibly related (not consistent) with momentum. It confirms that the measurement of representativeness heuristic is valid. Further researches show that the representativeness heuristic has the predictive ability for one-month-ahead excess return. Meanwhile, multiple robustness tests are constructed to prove these results.

Suggested Citation

  • Jun Xie & Nan Hu & Bin Gao & ChunZhi Tan, 2022. "Representativeness Heuristic in Stock Market: Measurement and Its Predictive Ability," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(5), pages 1276-1287, April.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:5:p:1276-1287
    DOI: 10.1080/1540496X.2020.1866533
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