Investor Regret and Stock Returns

• 成果类型: Article
• 署名作者: Arisoy, Y. Eser; Bali, Turan G.; Tang, Yi
• 署名单位: Georgetown University; Fordham University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.03389
• 发表日期: 2024
• 关键词: Regret theory; Equity returns; investor sophistication; household trading; Informational frictions; limits-to-arbitrage costly arbitrage

摘要

We introduce a measure of regret for stock market investors and investigate its cross-sectional asset pricing implications. According to our regret-based framework, investors experience regret due to not achieving the highest possible return from a similar set of stock investments, and equity portfolios with high regret generate 6.84% more annualized alpha than portfolios with low regret. Using investor-trading activity of 78,000 households at a large U.S.-based brokerage firm, we develop an investor-based regret index and show that this household-level regret measure predicts stock returns in a similar way to our proposed regret measure. We also show that regret is not spanned by established risk or behavioral factors that have been documented to be robust predictors of equity returns.