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The Anna Karenina principle and stock prices

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  • Baur, Dirk G.

Abstract

The Anna Karenina principle (AKP) based on the opening line of Leo Tolstoy’s Anna Karenina, “All happy families are all alike; each unhappy family is unhappy in its own way” is applied to financial markets. We test the AKP by defining happy firms as positive return firms and unhappy firms as negative return firms and analyse whether happy firms are more “alike” than unhappy firms. We use return correlations, cross-sectional return and cross-sectional volatility dispersion as measures and find for different stock index constituent samples totalling more than 8000 stocks that the AKP does not hold in general. In contrast, we find that the average return volatility of unhappy firms is larger than that of happy firms. This cross-sectional version of volatility asymmetry also implies that unhappy firms are more stressed than happy firms.

Suggested Citation

  • Baur, Dirk G., 2022. "The Anna Karenina principle and stock prices," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:beexfi:v:33:y:2022:i:c:s2214635021001465
    DOI: 10.1016/j.jbef.2021.100602
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    More about this item

    Keywords

    Anna Karenina principle; Volatility asymmetry; Return dispersion;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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