Low Risk and High Return – Affective Attitudes and Stock Market Expectations

36 Pages Posted: 31 Oct 2014

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: November 2014

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: affective attitudes, risk and return expectations, behavioural finance, affect heuristic

Suggested Citation

Kempf, Alexander and Merkle, Christoph and Niessen-Ruenzi, Alexandra, Low Risk and High Return – Affective Attitudes and Stock Market Expectations (November 2014). European Financial Management, Vol. 20, Issue 5, pp. 995-1030, 2014. Available at SSRN: https://ssrn.com/abstract=2517024 or http://dx.doi.org/10.1111/eufm.12001

Alexander Kempf (Contact Author)

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

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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