Fundamental Strength and the 52-Week High Anchoring Effect

Zhaobo Zhu (), Licheng Sun () and Min Chen
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Zhaobo Zhu: Audencia Business School
Licheng Sun: ODU - Old Dominion University [Norfolk]
Min Chen: SFSU - San Francisco State University

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Abstract: When stocks are trading near their 52-week high investors tend to have low expectation about their future returns. We contrast such expectations against firms' fundamental strength. For firms with strong fundamentals, we confirm that investors' expectations are too low, which is consistent with the hypothesis that the 52-week high acts as a psychological anchor. We report that a fundamental-strength enhanced 52-week high trading strategy significantly outperform the unconditional strategy by nearly doubling its average return. Moreover, we provide interesting evidence that this anomalous effect is most evident when investor sentiment is high, but absent among more sophisticated institutions and short sellers.

Keywords: Anchoring Bias; Underreaction; 52-week High; Fundamental Strength (search for similar items in EconPapers)
Date: 2023-05
Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-04086076
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Citations: View citations in EconPapers (2)

Published in Review of Quantitative Finance and Accounting, 2023, 60 (4), pp.1515-1542. ⟨10.1007/s11156-023-01138-3⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04086076

DOI: 10.1007/s11156-023-01138-3

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