Fundamental Strength and the 52-Week High Anchoring Effect

37 Pages Posted: 18 Jul 2019 Last revised: 6 Jun 2022

See all articles by Zhaobo Zhu

Zhaobo Zhu

Shenzhen University; Audencia Business School

Licheng Sun

Old Dominion University

Min Chen

San Francisco State University - Department of Accounting

Date Written: July 17, 2019

Abstract

When stocks are trading near their 52-week high, investors tend to have low expectation about their future returns. We contrast such expectations against firms’ fundamental strength. For firms with strong fundamentals, we confirm that investors’ expectations are too low, which is consistent with the hypothesis that the 52-week high acts as a psychological anchor. We report that a fundamental-strength enhanced 52-week high trading strategy significantly outperform the unconditional strategy by nearly doubling its average return. Moreover, we provide interesting evidence that this anomalous effect is most evident when investor sentiment is high, but absent among more sophisticated institutions and short sellers.

Keywords: Anchoring Bias; Underreaction, 52-week High; Fundamental Strength

Suggested Citation

Zhu, Zhaobo and Sun, Licheng and Chen, Min, Fundamental Strength and the 52-Week High Anchoring Effect (July 17, 2019). Available at SSRN: https://ssrn.com/abstract=3421545 or http://dx.doi.org/10.2139/ssrn.3421545

Zhaobo Zhu (Contact Author)

Shenzhen University ( email )

3688 Nanhai Road, Nanshan District
Shenzhen, Guangdong 518060
China

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Licheng Sun

Old Dominion University ( email )

Strome College of Business
Department of Finance
Norfolk, VA 23529-0222
United States

Min Chen

San Francisco State University - Department of Accounting ( email )

United States

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