Deakin University
Browse

File(s) under permanent embargo

Dynamic style preferences of individual investors and stock returns

journal contribution
posted on 2009-06-01, 00:00 authored by A Kumar
This study shows that individual investors systematically shift their preferences across extreme style portfolios (small vs. large, value vs. growth). These preference shifts are influenced by past style returns and earnings differentials, and advice from investment newsletters, but are unaffected by innovations in macroeconomic variables or shifts in expectations about future cash flows. Furthermore, investors’ dynamic style preferences influence returns along multiple dimensions: i) the contemporaneous relation between style returns and style-level preference shifts is strong, ii) there is weak evidence of style return predictability, and iii) the correlations among stocks within a style increase when investors move into or out of the style with greater intensity. Overall, the results indicate that stock categorization influences investors’ portfolio decisions and stock returns.

History

Journal

Journal of financial and quantitative analysis

Volume

44

Pagination

607-640

Location

Cambridge, Eng.

ISSN

0022-1090

eISSN

1756-6916

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2009, Michael G. Foster School of Business, University of Washington

Issue

3

Publisher

Cambridge University Press