Anchoring effect, prospect value and stock return

Chun Chen, Fangyi He and Lei Lin

International Review of Economics & Finance, 2024, vol. 89, issue PA, 1539-1556

Abstract: This paper studies the relation between prospect value and stock return under the anchoring effect. Our findings show that high (low) prospect value stocks are overpriced (underpriced) in the Chinese stock market. However, this negative relation only exists in stocks far from the 52-week high, where the long-short portfolio of prospect value earns a significant risk-adjusted return of 0.95% per month, and disappears near the 52-week high. Furthermore, we find the interaction between the 52-week high and prospect value mainly derives from the loss aversion feature. Our findings keep robust after controlling for the effect of stock fat-tail distribution.

Keywords: Prospect theory; Anchoring effect; 52-week high; Loss aversion (search for similar items in EconPapers)
JEL-codes: G11 G12 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pa:p:1539-1556

DOI: 10.1016/j.iref.2023.09.008

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