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

See all articles by Alexander Kempf

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR)

Christoph Merkle

Kuehne Logistics University

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 11, 2012

Abstract

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

Kempf, Alexander and Merkle, Christoph and Niessen-Ruenzi, Alexandra, Low Risk and High Return – Affective Attitudes and Stock Market Expectations (June 11, 2012). 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.. Available at SSRN: https://ssrn.com/abstract=1341076 or http://dx.doi.org/10.2139/ssrn.1341076

Alexander Kempf

University of Cologne - Department of Finance & Centre for Financial Research (CFR) ( email )

Cologne, 50923
Germany
+49 221 470 2714 (Phone)
+49 221 470 3992 (Fax)

Christoph Merkle (Contact Author)

Kuehne Logistics University ( email )

Großer Grasbrook 17
Hamburg, 20457
Germany
+49(0)40-328707-234 (Phone)

HOME PAGE: http://www.the-klu.org

Alexandra Niessen-Ruenzi

University of Mannheim - Department of Finance ( email )

Mannheim, 68131
Germany

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