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Gábor Neszveda

became an Assistant Professor at Corvinus University of Budapest in 2017. He studied quantitative economics at Corvinus University of Budapest and proceeded to do his PhD at the Department of Finance at Tilburg University. His main research interests include behavioral empirical asset pricing, liquidity behavioral economics, and experimental economics.

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Gabor Neszveda: Aspiration Level Theory and Stock Returns: An Empirical Test

According to aspiration level theory, stocks achieving an aspiration level return in the recent past more frequently earn a lower subsequent excess monthly return on average. To test this hypothesis in the cross-section of stock returns, I construct a measure for each stock as the probability of achieving the aspiration level return. I investigate several specifications for the aspiration level returns such as the zero return, the risk-free rate, the market return, and the industry average return. I find supporting evidence for the role of an aspiration level even after controlling for several known factors including size, book-to-market ratio, momentum, and short-term reversal. The results remain significant even among stocks with large market capitalization, with high liquidity, with high institutional ownership, and in both high and low sentiment time periods. Additional tests show that these results are not driven by microstructure effects.

Last modified: 2018.11.30.