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Availability heuristic and expected returns

Author

Listed:
  • Xie, Jun
  • Fang, Yuying
  • Gao, Bin
  • Tan, Chunzhi

Abstract

The paper investigates how the availability heuristic of individual stocks affects equity returns, where the availability heuristic is measured by the gap between the fractal dimension and the rational case (1.5). Our evidence support that the availability heuristic can positively predict the short-term expected excess returns and negatively predict the long-term expected excess returns. Further evidence from out-of-sample tests confirms the predictive ability of the availability heuristic. Our findings provide new insight into the understanding of the stock returns from behavioral finance.

Suggested Citation

  • Xie, Jun & Fang, Yuying & Gao, Bin & Tan, Chunzhi, 2023. "Availability heuristic and expected returns," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006201
    DOI: 10.1016/j.frl.2022.103443
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    References listed on IDEAS

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    More about this item

    Keywords

    Availability heuristic; Stock returns; Firm-special characteristic;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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