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Fundamental Strength and the 52-Week High Anchoring Effect

Author

Listed:
  • Zhaobo Zhu

    (Audencia Business School)

  • Licheng Sun

    (ODU - Old Dominion University [Norfolk])

  • Min Chen

    (SFSU - San Francisco State University)

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.

Suggested Citation

  • Zhaobo Zhu & Licheng Sun & Min Chen, 2023. "Fundamental Strength and the 52-Week High Anchoring Effect," Post-Print hal-04086076, HAL.
    • Handle: RePEc:hal:journl:hal-04086076
    DOI: 10.1007/s11156-023-01138-3
    Note: View the original document on HAL open archive server: https://audencia.hal.science/hal-04086076
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    Cited by:

    1. Zhu, Zhaobo & Ding, Wenjie & Jin, Yi & Shen, Dehua, 2023. "Dissecting the idiosyncratic volatility puzzle: A fundamental analysis approach," Research in International Business and Finance, Elsevier, vol. 66(C).
    2. Zhaobo Zhu & Licheng Sun, 2024. "When Buffett Meets Bollinger: An Integrated Approach to Fundamental and Technical Analysis," Post-Print hal-04703041, HAL.

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