Anchoring and Risk Factors

Levon Goukasian, Emily Jian Huang, Qingzhong Ma and Wei Zhang
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Levon Goukasian: Seaver College, Pepperdine University, Malibu, California, United States,
Emily Jian Huang: College of Business, California State University, Chico, California, United States.
Qingzhong Ma: College of Business, California State University, Chico, California, United States.
Wei Zhang: College of Business, California State University, Chico, California, United States.

International Journal of Economics and Financial Issues, 2021, vol. 11, issue 4, 82-96

Abstract: Profitability and investment are becoming the new focus of empirical asset pricing. We examine the extent to which their return predictability is attributable to investors tendency to anchor on 52-week high. Based on a return decomposition methodology developed by George, Hwang, and Li (2014), two profitability measures (operating profitability, return on equity) and two investment measures (asset growth and investment to assets) are entirely attributable to anchoring. These results survive a battery of robustness checks and hold largely in various subsamples. The findings send a warning that these two potential risk factors could be attributed to the anchoring bias.

Keywords: Profitability; Investment; Anomaly; Anchoring; Return decomposition (search for similar items in EconPapers)
JEL-codes: G12 G14 G18 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2021-04-10

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