Description:
This paper studies the negative relation between prospect value and stock return under anchoring effect. We show that high (low) prospect value stocks are overpriced (underpriced) in the Chinese stock market. However, this negative relation only exists in stocks far from the 52-week high, where the long-short portfolio of prospect value earns a significant risk-adjusted return of 1.03% per month, and disappears near the 52-week high. Furthermore, we find the interaction between the 52-week high and prospect value mainly derives from the loss aversion feature. Our findings keep robust after controlling for the effect of stock fat-tail distribution