Abstract
This paper introduces the market framing bias (MFB): a framing effect that affects the return-risk tradeoff under different frameworks of aggregate market losses and profits, which is measured by the absolute difference between betas in the rising and falling markets. The paper finds that the MFB can predict lower future stock return on the cross-section. Specifically, after controlling for various firm-specific characteristics, this predictive power of the FMB declines over time. Furthermore, the predictive power of the FMB is stable in the short term even after controlling for various pricing factors and firm-specific characteristics.
Funder
National Natural Science Foundation of China
Natural Science Foundation of Guangxi Province of China
‘Guangxi One Thousand Young and Middle-Aged College and University Backbone Teachers Cultivation Program’ Humanities and social sciences projects
Publisher
Public Library of Science (PLoS)
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