Kempf, Alexander Merkle, Christoph Niessen-Ruenzi, Alexandra
Year of Publication:
CFR Working Paper 09-10 [rev.]
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.
affective attitudes risk and return expectations behavioral finance affect heuristic