Low Risk and High Return – Affective Attitudes and Stock Market Expectations


  • We thank seminar participants at the FMA 2009 European conference, the IMEBE 2009 conference, the DGF 2009 conference, the University of Mannheim, and the University of Cologne for valuable comments. We also thank the editor John Doukas and two anonymous referees for very helpful comments. The authors acknowledge research support from the Centre for Financial Research at the University of Cologne. All errors are our own. Correspondence: Alexandra Niessen-Ruenzi.


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.