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  5. Behavioral Finance: Predictable Stock Returns
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Behavioral Finance: Predictable Stock Returns

Paper Session

Saturday, Jan. 3, 2026 10:15 AM - 12:15 PM (EST)

Loews Philadelphia Hotel, Commonwealth Hall C
Hosted By: American Finance Association
  • Lisa Kramer, University of Toronto

GIFfluence: A Visual Approach to Investor Sentiment and the Stock Market

Ming Gu
,
University of California-Irvine
David Hirshleifer
,
University of Southern California
Siew Hong Teoh
,
University of California-Los Angeles
Shijia Wu
,
Chinese University of Hong Kong-Shenzhen

Abstract

We study dynamic visual representations as a proxy for investor sentiment and their relation to stock market outcomes. Our sentiment index, GIFsentiment, is constructed from millions of posts containing visuals in the Graphics Interchange Format (GIF) on a leading investment social media platform. GIFsentiment correlates with seasonal mood variations and the severity of COVID lockdowns. It is positively associated with contemporaneous market returns and negatively with returns in the subsequent three weeks, even after controlling for other sentiment measures. These effects are stronger among portfolios of stocks that are more susceptible to mispricing. GIFsentiment positively predicts trading volume, short sales, market volatility, and flows toward equity funds and away from debt funds. Our evidence suggests that GIFsentiment is a proxy for misperceptions that are later corrected.

The Inflation Gamble

Melina Vosse
,
University of San Diego
Yosef Bonaparte
,
University of Colorado-Denver
George Korniotis
,
University of Miami
Alok Kumar
,
University of Miami

Abstract

This paper identifies a new link between inflation and asset prices. Our key conjecture is that lottery-type investments will be attractive to inflation-sensitive investors when inflation rises, as they feel "poorer" and attempt to mitigate inflation-induced loss in purchasing power. Consistent with this conjecture, we find that high inflation lowers risk aversion, strengthens skewness preference, and increases demand for investments that resemble lotteries. Due to increased gambling demand, lottery-type stocks become more overpriced and earn lower returns in the future. This negative relation is stronger for lottery-type stocks that have greater sensitivity to inflation and are harder to arbitrage. Further, lottery-type stocks with high retail trading and those located in regions with stronger gambling propensity become more overpriced. Together, these findings indicate that increased gambling demand in high inflationary environments generates predictable patterns in stock returns.

Correlation Neglect in Asset Prices

Hongye Guo
,
University of Hong Kong
Jessica Wachter
,
University of Pennsylvania

Abstract

The U.S. stock market’s return during the first month of a quarter positively predicts the second month's return, which then negatively predicts the first month's return of the next quarter. The pattern arises from a model in which investors do not fully recognize that earnings announced in the second month of a quarter are inherently similar to those announced in the first month, thereby overreacting to such predictably repetitive earnings. The same pattern also exists on the cross section of industry returns and survey data, lending out-of-sample support to this mechanism of correlation neglect.

Same-Weekday Momentum

Zhi Da
,
University of Notre Dame
Xiao Zhang
,
University of Maryland

Abstract

"A disproportionately large fraction (70%) of the stock momentum reflects return
continuation on the same weekday (e.g., Mondays to Mondays) or the same-weekday
momentum. Even after accounting for partial reversals in other weekdays, the
same-weekday momentum still contributes to a significant fraction (20% to 60%) of
the momentum effect. This pattern is robust to different size filters, weighing schemes,
time periods, and sample cuts. The same-weekday momentum is hard to square with
traditional momentum theories based on investor misreaction. Instead, we provide
direct and novel evidence that links it to within-week seasonality and persistence
in institutional trading. Overall, our findings highlight institutional trading as an
important driver of the stock momentum."

Discussant(s)
Chukwuma Dim
,
George Washington University
Lin Peng
,
CUNY-Baruch College
Itzhak Ben-David
,
Ohio State University
Jeffrey Pontiff
,
Boston College
JEL Classifications
  • G4 - Behavioral Finance