Perspectives-Affect in a Behavioral Asset-Pricing Model

Posted: 18 May 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)

Abstract

Stocks, like houses, cars, watches, and other products, exude affect - that is, they are considered good or bad, beautiful or ugly; they are admired or disliked. Affect plays an overt role in the pricing of houses, cars, and watches, but according to standard financial theory, it plays no role in the pricing of financial assets. This article outlines a behavioral asset-pricing model in which expected returns are high not only when objective risk is high but also when subjective risk is high. High subjective risk comes with negative affect. Investors prefer stocks with positive affect, which boosts the prices of such stocks and depresses their returns.

Keywords: Equity Investments, Fundamental Analysis and Valuation Models, Investment Theory, CAPM, APT, and Other Pricing Theories, Behavioral Finance

JEL Classification: G12, G14

Suggested Citation

Statman, Meir and Fisher, Kenneth L. and Anginer, Deniz, Perspectives-Affect in a Behavioral Asset-Pricing Model. Financial Analysts Journal, Vol. 64, No. 2, 2008. Available at SSRN: https://ssrn.com/abstract=1134007

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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