Low risk and high return: Affective attitudes and stock market expectations

Alexander Kempf, Christoph Merkle and Alexandra Niessen-Ruenzi

No 09-10 [rev.], CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: This experimental study investigates the impact of affective attitudes on risk and return estimates of stocks. Participants rate well-known blue-chip firms on an affective scale and forecast risk and return of the firms' stock. We find that positive affective attitudes lead to a prediction of high return and low risk, while negative attitudes lead to a prediction of low return and high risk. This bias increases with participants' confidence in their ratings and decreases with financial literacy. Firm characteristics such as a firm's marketing expenditures and the strength of its brand have a positive impact on its affective rating.

Keywords: affective attitudes; risk and return expectations; behavioral finance; affect heuristic (search for similar items in EconPapers)
JEL-codes: D80 G02 G11 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:0910r

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