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http://ssrn.com/abstract=1508852
 
 

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Investor Attention, Psychological Anchors, and Stock Return Predictability


Jun Li


University of Texas at Dallas

Jianfeng Yu


University of Minnesota

August 17, 2010

Journal of Financial Economics (JFE), Vol. 104, pp. 401-419, May 2012

Abstract:     
Motivated by psychological evidence on limited investor attention and anchoring, we propose two proxies for the degree to which traders under- and over-react to news, namely, the nearness to the Dow 52-week high and the nearness to the Dow historical high, respectively. We find that nearness to the 52-week high positively predicts future aggregate-market returns, while nearness to the historical high negatively predicts future market returns. We further show that our proxies contain information about future market returns that is not captured by traditional macroeconomic variables and that our results are robust across G7 countries. Comprehensive Monte Carlo simulations and comparisons with the NYSE/AMEX market cap index confirm the significance of these findings.

Number of Pages in PDF File: 46

Keywords: Under-reaction, Over-reaction, Anchor, Behavioral Finance

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Date posted: November 19, 2009 ; Last revised: March 20, 2012

Suggested Citation

Li, Jun and Yu, Jianfeng, Investor Attention, Psychological Anchors, and Stock Return Predictability (August 17, 2010). Journal of Financial Economics (JFE), Vol. 104, pp. 401-419, May 2012. Available at SSRN: http://ssrn.com/abstract=1508852

Contact Information

Jun Li
University of Texas at Dallas ( email )
800 West Campbell Road, SM 31
Richardson, TX 75080
United States
972-883-4422 (Phone)
Jianfeng Yu (Contact Author)
University of Minnesota ( email )
321 19th Avenue
Suite 3-122
Minneapolis, MN 55455
United States
HOME PAGE: http://users.cla.umn.edu/~jianfeng/
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