IDEAS home Printed from https://ideas.repec.org/a/wsi/qjfxxx/v03y2013i03n04ns2010139213500171.html
   My bibliography  Save this article

The Information Content of Investors' Expectations for Risk and Return

Author

Listed:
  • Thomas Berry

    (Driehaus College of Business, DePaul University, USA)

  • Keith Jacks Gamble

    (Driehaus College of Business, DePaul University, USA)

Abstract

This study reveals the information content of individual investors' risk-adjusted return expectations. Although individual investors overestimate the performance of their stock purchases on an average, the cross-sectional variation in their risk-adjusted return expectations is predictive of future risk-adjusted stock performance. Stock purchases that investors expect to outperform the most do outperform the stock purchases that investors expect to outperform the least by an annualized alpha of 16%. The best performing stocks are those that investors with excellent experience expect to outperform the most while the worst performing stocks are those that investors with limited experience expect to outperform the least. The most experienced investors appear to be successfully using information gathered from personal experience with the company's products or services, contact with someone who works for or with the company on a regular basis, and proximity to the company's operations.

Suggested Citation

  • Thomas Berry & Keith Jacks Gamble, 2013. "The Information Content of Investors' Expectations for Risk and Return," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 3(03n04), pages 1-23.
    • Handle: RePEc:wsi:qjfxxx:v:03:y:2013:i:03n04:n:s2010139213500171
    DOI: 10.1142/S2010139213500171
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S2010139213500171
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S2010139213500171?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2013. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, volume 2, number 2-b.
    2. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2013. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, volume 2, number 2-a.
    3. Gene Amromin & Steven A. Sharpe, 2014. "From the Horse's Mouth: Economic Conditions and Investor Expectations of Risk and Return," Management Science, INFORMS, vol. 60(4), pages 845-866, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Merkle, Christoph, 2017. "Financial overconfidence over time: Foresight, hindsight, and insight of investors," Journal of Banking & Finance, Elsevier, vol. 84(C), pages 68-87.
    2. Sarantis Tsiaplias & Qi Zeng & Guay Lim, 2021. "Retail investor expectations and trading preferences," Melbourne Institute Working Paper Series wp2021n27, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. Leye Li & Louise Yi Lu & Dongyue Wang, 2022. "External labour market competitions and stock price crash risk: evidence from exposures to competitor CEOs’ award‐winning events," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1421-1460, April.
    4. John Y. Campbell, 2016. "Restoring Rational Choice: The Challenge of Consumer Financial Regulation," American Economic Review, American Economic Association, vol. 106(5), pages 1-30, May.
    5. Eric Hilt, 2014. "History of American Corporate Governance: Law, Institutions, and Politics," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 1-21, December.
    6. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    7. Hu, Xiaolu & Shi, Jing & Wang, Lafang & Yu, Jing, 2020. "Foreign ownership in Chinese credit ratings industry: Information revelation or certification?," Journal of Banking & Finance, Elsevier, vol. 118(C).
    8. Josh Lerner & Ramana Nanda, 2020. "Venture Capital's Role in Financing Innovation: What We Know and How Much We Still Need to Learn," Journal of Economic Perspectives, American Economic Association, vol. 34(3), pages 237-261, Summer.
    9. Guoli Chen & Sterling Huang & Philipp Meyer‐Doyle & Denisa Mindruta, 2021. "Generalist versus specialist CEOs and acquisitions: Two‐sided matching and the impact of CEO characteristics on firm outcomes," Strategic Management Journal, Wiley Blackwell, vol. 42(6), pages 1184-1214, June.
    10. Allen, Franklin & Carletti, Elena & Marquez, Robert, 2015. "Deposits and bank capital structure," Journal of Financial Economics, Elsevier, vol. 118(3), pages 601-619.
    11. Lips, Johannes, 2018. "Debt and the Oil Industry - Analysis on the Firm and Production Level," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181504, Verein für Socialpolitik / German Economic Association.
    12. Broer, Tobias, 2018. "Securitization bubbles: Structured finance with disagreement about default risk," Journal of Financial Economics, Elsevier, vol. 127(3), pages 505-518.
    13. L. Bottazzi & M. Da Rin & T. Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 612, Dipartimento Scienze Economiche, Universita' di Bologna.
    14. Fousseni Chabi-Yo & Riccardo Colacito, 2019. "The Term Structures of Coentropy in International Financial Markets," Management Science, INFORMS, vol. 65(8), pages 3541-3558, August.
    15. Xiao Li & Jeffrey Ng & Walid Saffar, 2021. "Financial Reporting and Trade Credit: Evidence from Mandatory IFRS Adoption," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 96-128, March.
    16. Baker, Scott R. & Johnson, Stephanie & Kueng, Lorenz, 2024. "Financial returns to household inventory management," Journal of Financial Economics, Elsevier, vol. 151(C).
    17. Timothy W Guinnane & Susana Mart�nez-Rodr�guez, 2018. "Choice of Enterprise Form: Spain, 1886–1936," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(1), pages 1-26.
    18. Ashley Lim & Yihui Lan & Sirimon Treepongkaruna, 2020. "Asset pricing and energy consumption risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3813-3850, December.
    19. Mehdi Nekhili & Fahim Javed & Haithem Nagati, 2022. "Audit Partner Gender, Leadership and Ethics: The Case of Earnings Management," Journal of Business Ethics, Springer, vol. 177(2), pages 233-260, May.
    20. Jeppe Druedahl & Alessandro Martinello, 2022. "Long-Run Saving Dynamics: Evidence from Unexpected Inheritances," The Review of Economics and Statistics, MIT Press, vol. 104(5), pages 1079-1095, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:qjfxxx:v:03:y:2013:i:03n04:n:s2010139213500171. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/qjf/qjf.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.