Subjective Extremeness: Contrast Effects in the Perception of Stock Returns

61 Pages Posted: 4 Feb 2021 Last revised: 25 Sep 2022

See all articles by Constantinos Antoniou

Constantinos Antoniou

University of Warwick - Warwick Business School

Junyang Guo

University of Warwick - Warwick Business School

Neil Stewart

University of Warwick - Warwick Business School

Date Written: March 15, 2021

Abstract

Stock returns convey information to investors about fundamental values. But, do all investors perceive the same stock return in the same way? Using a large dataset of retail investor trading decisions, we show that different investors respond differently to the same return, and that these differences are driven by the comparison of the return to investors' personal return experiences from the small set of stocks they own. The effect is economically large, robust to model specification, and stronger when investors are more likely to remember their return experiences. Overall, our findings suggest that contrast effects create considerable subjectivity in the perception of stock returns.

Keywords: contrast effects, salience, stock trading

JEL Classification: G11, G02, D14

Suggested Citation

Antoniou, Constantinos and Guo, Junyang and Stewart, Neil, Subjective Extremeness: Contrast Effects in the Perception of Stock Returns (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=3777778 or http://dx.doi.org/10.2139/ssrn.3777778

Constantinos Antoniou

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Junyang Guo (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Neil Stewart

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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