Availability Heuristic and Expected Returns

The paper investigates how the availability heuristic of individual stocks affects equity returns, where the availability heuristic is measured by the irrational signal in the fractal dimension. Our evidence support that the availability heuristic can positively predict the short-term expected excess returns and negatively predict the long-term expected excess returns. Further evidence from out-of-sample tests confirms the predictive ability of availability heuristic. Our findings provide new insight into the understanding of the stock returns from behavioral finance