Download this Paper Open PDF in Browser

Characteristics, Affect, and Stock Returns

24 Pages Posted: 7 Feb 2010  

Meir Statman

Santa Clara University - Department of Finance

Multiple version iconThere are 2 versions of this paper

Abstract

Why were the returns of stocks with low book-to-market ratios and high market capitalization's lower, on average, than the returns of stocks with high book-to-market ratios and low market capitalization's? In this paper we pit the characteristics hypothesis against the affect hypothesis. The characteristics hypothesis says that some characteristics, such as low book-to-market ratio and high market capitalization, are associated with high future stock returns in typical investors’ minds. The affect hypothesis says that the names of some companies elicit positive affect which is associated with high future stock returns in typical investors’ minds. We find, through experiments, that the evidence is more consistent with the affect hypothesis than with the characteristics hypothesis.

Keywords: behavioral finance, investor behavior, affect hypothesis, efficient market

JEL Classification: G00, G10, G14

Suggested Citation

Statman, Meir, Characteristics, Affect, and Stock Returns. SCU Leavey School of Business Research Paper No. 10-06. Available at SSRN: https://ssrn.com/abstract=1548602 or http://dx.doi.org/10.2139/ssrn.1548602

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)

Paper statistics

Downloads
298
Rank
65,814
Abstract Views
1,309