The Visual Shape Score: On its Predictability in the Lab, the Aggregated Stock Market, and the Cross-Section of Stock Returns

34 Pages Posted: 24 Sep 2021

See all articles by Henning Cordes

Henning Cordes

University of Muenster - Finance Center

Hannes Mohrschladt

University of Muenster - Finance Center

Sven Nolte

Radboud University

Judith C. Schneider

Leibniz Universität Hannover - Faculty of Economics and Management

Date Written: September 20, 2021

Abstract

We introduce a simple and highly portable measure capturing the impact of price path visualizations on investor behavior, beliefs, and financial market outcomes: the visual shape score (VSS). The score reflects the degree of convexity of a price path. Although VSS is only a single metric, it captures four aspects of price path visualizations: bottom-up visual salience, top-down effects like evoked emotions, visual pattern recognition, and simplifications due to visualisation. Experimental findings suggest that more convex shapes positively explain investors' return expectations, their stated stock attractiveness, and investments. We augment the experimental results with field data. We find that VSS can help to better understand beliefs elicited from survey data and that VSS exhibits return predictability among individual stocks beyond a large range of cross-sectional return predictors.

Keywords: Price paths, return expectations, cross-section of stocks

JEL Classification: G4, G12

Suggested Citation

Cordes, Henning and Mohrschladt, Hannes and Nolte, Sven and Schneider, Judith C., The Visual Shape Score: On its Predictability in the Lab, the Aggregated Stock Market, and the Cross-Section of Stock Returns (September 20, 2021). Available at SSRN: https://ssrn.com/abstract=3927479 or http://dx.doi.org/10.2139/ssrn.3927479

Henning Cordes

University of Muenster - Finance Center ( email )

Universitätsstr. 14-16
Muenster, 48143
Germany
+49 251 83 22058 (Phone)

Hannes Mohrschladt

University of Muenster - Finance Center ( email )

Universitätsstr. 14-16
Muenster, 48143
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/fcm/en/the-fcm/lsf/team/hannes-mohrschladt

Sven Nolte (Contact Author)

Radboud University ( email )

Nijmegen
Netherlands

Judith C. Schneider

Leibniz Universität Hannover - Faculty of Economics and Management ( email )

Königsworther Platz 1
Hannover, 30167
Germany

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