Regret in global equity markets

Yigit Atilgan, K. Ozgur Demirtas, A. Doruk Gunaydin and Aynur Dilan Tosun

International Review of Financial Analysis, 2025, vol. 103, issue C

Abstract: This paper investigates the relation between investment regret and the cross-section of equity returns in an international context. We measure the level of regret from investing in a stock as the negative of the difference between the stock's return and the maximum return that could have been achieved by a stock either in the same industry or with a similar market capitalization or book-to-market ratio. We find that the positive relation between regret and future equity returns is stronger for equal-weighted portfolios suggesting that it is more acute for small stocks. Moreover, the regret effect is stronger in emerging markets compared to developed markets. Furthermore, size-based regret is more pronounced compared to industry- or value-based regret. The regret effect is more prevalent in countries characterized by short-term orientation, capital controls and higher limits-to-arbitrage.

Keywords: Regret theory; Behavioral finance; Equity returns; International stock markets (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 G41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:103:y:2025:i:c:s1057521925002856

DOI: 10.1016/j.irfa.2025.104198

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