Motivated beliefs about stock returns

Systematic biases in return expectations can distort stock prices and lead to inefficient capital allocation. In this paper, we report experimental evidence that buying a stock induces optimistically biased expectations when its price drops below the purchase price. We find this effect across two experimental settings, a controlled laboratory experiment and a six-week-long online experiment involving real equities traded in the stock market in real time. Our results are consistent with the idea that investors form “motivated beliefs” about stocks returns. In addition, motivated beliefs explain a substantial part of the reluctance to sell losing stocks, as in the well-known disposition effect.

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Publication Details

Journal
Journal of Banking & Finance
Published
2025-06-24
DOI
https://doi.org/10.1016/j.jbankfin.2025.107510
Primary Topic
Financial Markets and Investment Strategies
Type
article
Field-Weighted Citation Impact
0.00

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article

Motivated beliefs about stock returns

Iñigo Iturbe-Ormaetxe, Carlos Cueva
Journal of Banking & Finance
Financial Markets and Investment Strategies
article

Motivated beliefs about stock returns

Iñigo Iturbe-Ormaetxe, Carlos Cueva
article en

Abstract

Systematic biases in return expectations can distort stock prices and lead to inefficient capital allocation. In this paper, we report experimental evidence that buying a stock induces optimistically biased expectations when its price drops below the purchase price. We find this effect across two experimental settings, a controlled laboratory experiment and a six-week-long online experiment involving real equities traded in the stock market in real time. Our results are consistent with the idea that investors form “motivated beliefs” about stocks returns. In addition, motivated beliefs explain a substantial part of the reluctance to sell losing stocks, as in the well-known disposition effect.

Journal of Banking & FinanceVol. 178
University of Alicante (ES)
Generalitat Valenciana, Ministerio de Ciencia e Innovación
Openalex Percentile: Top 81%
Financial Markets and Investment Strategies
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