Low Risk and High Return – Affective Attitudes and Stock Market Expectations
This is the accepted version of the following article: Kempf, A., Merkle, C. and Niessen-Ruenzi, A. (2014), Low Risk and High Return – Affective Attitudes and Stock Market Expectations. European Financial Management, 20: 995–1030, which has been published in final form at doi: 10.1111/eufm.12001.
51 Pages Posted: 11 Feb 2009 Last revised: 22 Sep 2016
Date Written: June 11, 2012
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.
Keywords: Emotions, Risk and Return Expectations, Behavioral Finance, Affect Heuristic
JEL Classification: D80, G02, G11
Suggested Citation: Suggested Citation