Availability heuristic and expected returns

Jun Xie, Yuying Fang, Bin Gao and Chunzhi Tan

Finance Research Letters, 2023, vol. 51, issue C

Abstract: The paper investigates how the availability heuristic of individual stocks affects equity returns, where the availability heuristic is measured by the gap between the fractal dimension and the rational case (1.5). Our evidence support that the availability heuristic can positively predict the short-term expected excess returns and negatively predict the long-term expected excess returns. Further evidence from out-of-sample tests confirms the predictive ability of the availability heuristic. Our findings provide new insight into the understanding of the stock returns from behavioral finance.

Keywords: Availability heuristic; Stock returns; Firm-special characteristic (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006201

DOI: 10.1016/j.frl.2022.103443

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