The negativity bias and perceived return distributions: Evidence from a pandemic
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Negativity Bias and Stock Return ...
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Final Accepted Manuscript
Affiliation
Department of Finance, Eller College of Management, University of ArizonaIssue Date
2023-02-16Keywords
Strategy and ManagementEconomics and Econometrics
Finance
Accounting
Household finance
Long-term equity return beliefs
Negativity bias
Stock market participation
Metadata
Show full item recordPublisher
Elsevier BVCitation
Sias, R., Starks, L. T., & Turtle, H. J. (2023). The negativity bias and perceived return distributions: Evidence from a pandemic. Journal of Financial Economics, 147(3), 627-657.Journal
Journal of Financial EconomicsRights
© 2023 Elsevier B.V. All rights reserved.Collection Information
This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at repository@u.library.arizona.edu.Abstract
We hypothesize that the well-documented negativity bias, the psychological tendency to asymmetrically emphasize negative over positive aspects, can help explain several financial market phenomena: why most individuals hold strongly bearish views of both short- and long-term equity return distributions, why individuals exhibit heterogeneous beliefs, and the stock market participation puzzle. Using variation in the perceived risk of mortality from the swine flu pandemic as our primary proxy for an individual's negativity bias, we find strong support for our hypothesis even when controlling for alternative mechanisms including optimism, risk aversion, ambiguity aversion, and anxiety.Note
24 month embargo; first published 16 February 2023ISSN
0304-405XVersion
Final accepted manuscriptae974a485f413a2113503eed53cd6c53
10.1016/j.jfineco.2023.01.003