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Low risk and high return: Affective attitudes and stock market expectations

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  • Kempf, Alexander
  • Merkle, Christoph
  • Niessen-Ruenzi, Alexandra

Abstract

This experimental study investigates the impact of affective attitudes on risk and return estimates of stocks. Participants rate well-known blue-chip firms on an affective scale and forecast risk and return of the firms' stock. We find that positive affective attitudes lead to a prediction of high return and low risk, while negative attitudes lead to a prediction of low return and high risk. This bias increases with participants' confidence in their ratings and decreases with financial literacy. Firm characteristics such as a firm's marketing expenditures and the strength of its brand have a positive impact on its affective rating.

Suggested Citation

  • Kempf, Alexander & Merkle, Christoph & Niessen-Ruenzi, Alexandra, 2012. "Low risk and high return: Affective attitudes and stock market expectations," CFR Working Papers 09-10 [rev.], University of Cologne, Centre for Financial Research (CFR).
  • Handle: RePEc:zbw:cfrwps:0910r
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    References listed on IDEAS

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    Cited by:

    1. Yang, Chunpeng & Yan, Wei & Zhang, Rengui, 2013. "Sentiment approach to negative expected return in the stock market," Economic Modelling, Elsevier, vol. 35(C), pages 30-34.
    2. repec:eee:ecofin:v:47:y:2019:i:c:p:210-222 is not listed on IDEAS
    3. Abdulkadir Abdulrashid Rafindadi, 2015. "Are the Contentious Issues of Exchange Rate Misalignment in Nigeria a Prelude to the Country’s Currency Crisis?," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 716-731.
    4. Roman Kräussl & Ronald Bosman & Thomas van Galen, 2014. "Emotions-at-Risk: An Experimental Investigation into Emotions, Option Prices and Risk Perception," LSF Research Working Paper Series 14-11, Luxembourg School of Finance, University of Luxembourg.
    5. Fatih B. GUMUS & Yusuf DAYIOGLU, 2015. "An Analysis on The Socio-Economic and Demographic Factors That Have an Effect on The Risk Taking Preferences of Personal Investors," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 136-147.

    More about this item

    Keywords

    affective attitudes; risk and return expectations; behavioral finance; affect heuristic;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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