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Low Risk and High Return – Affective Attitudes and Stock Market Expectations
Author(s) -
Kempf Alexander,
Merkle Christoph,
NiessenRuenzi Alexandra
Publication year - 2014
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12001
Subject(s) - stock (firearms) , stock market , financial literacy , expected return , rate of return , business , actuarial science , economics , financial economics , finance , mechanical engineering , portfolio , paleontology , horse , engineering , biology
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.