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Title:Low risk and high return - how emotions shape expectations on the stock market
Authors:Kempf, Alexander
Niessen-Ruenzi, Alexandra
Merkle, Christoph
Issue Date:2009
Series/Report no.:CFR working paper 09-10
Abstract:This experimental paper investigates the impact of emotions on risk and return estimates of stocks. Participants rate well-known blue-chip firms on an emotional scale and forecast risk and return of the firms' stock. We find that positive emotions lead to a prediction of high return and low risk, while negative emotions lead to a prediction of low return and high risk. This bias increases with participants' confidence in their ratings and decreases with financial literacy. We conclude that firms with a positive emotional appeal attract less financially literate and more emotional investors. In line with this conjecture, we find that firms that are rated very positively are held by a larger fraction of retail investors.
Subjects:Emotions
Risk and Return Estimation
Behavioral Finance
Affect Heuristic
JEL:D80
D81
G10
Is replaced by the following version:http://hdl.handle.net/10419/70122
Document Type:Working Paper
Appears in Collections:CFR Working Papers, Centre for Financial Research (CFR), Universität Köln

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