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

TY - JOUR

T1 - Low risk and high return - Affective attitudes and stock market expectations

AU - Kempf, Alexander

AU - Merkle, Christoph

AU - Niessen-Ruenzi, Alexandra

PY - 2014/11/1

Y1 - 2014/11/1

N2 - 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.

AB - 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.

KW - affect heuristic

KW - affective attitudes

KW - behavioural finance

KW - risk and return expectations

UR - http://www.scopus.com/inward/record.url?scp=84904605775&partnerID=8YFLogxK

U2 - 10.1111/eufm.12001

DO - 10.1111/eufm.12001

M3 - Journal article

AN - SCOPUS:84904605775

SN - 1354-7798

VL - 20

SP - 995

EP - 1030

JO - European Financial Management

JF - European Financial Management

IS - 5

ER -