Investor heterogeneity and anchoring-induced momentum

Olena Onishchenko, Jing Zhao, Sampath Kongahawatte and Duminda Kuruppuarachchi

Journal of Behavioral and Experimental Finance, 2024, vol. 42, issue C

Abstract: This paper investigates how anchoring-induced investors’ trading behavior drives momentum anomaly. The results show that price momentum does not retain its ability to predict future returns after considering the stock’s nearness to its 52-week high. The stock price’s nearness to the 52-week high is a stronger return predictor for stocks with a higher retail trading proportion. This suggests an anchoring-induced momentum pattern, which is affected by investor heterogeneity. Our trading flow analysis reveals that retail investors are subject to anchoring bias. Their trading behavior causes price underreaction to good (bad) information for stocks traded near (far from) their 52-week high.

Keywords: Anchoring bias; Investor type; Price momentum; 52-week high; Return predictability (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:42:y:2024:i:c:s2214635024000418

DOI: 10.1016/j.jbef.2024.100926

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