Availability heuristic and expected returns

Finance Research Letters, Volume 51, January 2023


School of Economics, Guangxi University, Nanning, China
School of Economics, Guangxi University for Nationalities, Nanning, China

Received 3 September 2022, Revised 5 October 2022, Accepted 26 October 2022, Available online 29 October 2022, Version of Record 8 November 2022.


The paper investigates how the availability heuristic of individual stocks affects equity returns, where the availability heuristic is measured by the gap between the fractal dimension and the rational case (1.5). 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 the availability heuristic. Our findings provide new insight into the understanding of the stock returns from behavioral finance.