Title: Anxiety in returns
Authors: Sebastian Schaefer - University of Wuppertal (Germany) [presenting]
Uta Pigorsch - University of Wuppertal (Germany)
Abstract: Empirical evidence is provided that risk-averse investors avoid stocks with signs of increasing uncertainty, missing 1.02 percentage points in next-month returns. The observed effect counteracts short-term reversal and supports convex risk aversion. Moreover, anxiety predicts cross-sectional returns in out-of-sample tests, strongly suggesting that empirical risk premia are driven by predictable risk-averse investors' preferences.