Affect in a Behavioral Asset Pricing Model

26 Pages Posted: 17 Feb 2008

See all articles by Meir Statman

Meir Statman

Santa Clara University - Department of Finance

Kenneth L. Fisher

Fisher Investments, Inc.

Deniz Anginer

Simon Fraser University (SFU)

Date Written: February 2008

Abstract

Stocks, like houses, cars, watches and most other products exude affect, good or bad, beautiful or ugly, admired or despised. Affect plays a role in pricing models of houses, cars and watches but, according to standard financial theory, affect plays no role in pricing of financial assets. We outline a behavioral asset pricing model where expected returns are high when objective risk is high and also when subjective risk is high. High subjective risk comes with negative affect. Investors prefer stocks with positive affect and their preference boosts the prices of such stocks and depresses their returns.

Keywords: asset pricing models, market efficiency, behavioral finance, emotions, cognitive biases

JEL Classification: G11, G12, G14

Suggested Citation

Statman, Meir and Fisher, Kenneth L. and Anginer, Deniz, Affect in a Behavioral Asset Pricing Model (February 2008). Available at SSRN: https://ssrn.com/abstract=1094070 or http://dx.doi.org/10.2139/ssrn.1094070

Meir Statman (Contact Author)

Santa Clara University - Department of Finance ( email )

500 El Camino Real
Santa Clara, CA 95053
United States
408-554-4147 (Phone)
408-554-4029 (Fax)

Kenneth L. Fisher

Fisher Investments, Inc. ( email )

13100 Skyline Blvd.
Woodside, CA 94062
United States
800-851-8845 (Phone)
650-851-3514 (Fax)

Deniz Anginer

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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