The negativity bias and perceived return distributions: Evidence from a pandemic

Richard Sias, Laura T. Starks, H. J. Turtle

Research output: Contribution to journalArticlepeer-review


We hypothesize that the well-documented negativity bias, the psychological tendency to asymmetrically emphasize negative over positive aspects, can help explain several financial market phenomena: why most individuals hold strongly bearish views of both short- and long-term equity return distributions, why individuals exhibit heterogeneous beliefs, and the stock market participation puzzle. Using variation in the perceived risk of mortality from the swine flu pandemic as our primary proxy for an individual's negativity bias, we find strong support for our hypothesis even when controlling for alternative mechanisms including optimism, risk aversion, ambiguity aversion, and anxiety.

Original languageEnglish (US)
Pages (from-to)627-657
Number of pages31
JournalJournal of Financial Economics
Issue number3
StatePublished - Mar 2023
Externally publishedYes


  • Household finance
  • Long-term equity return beliefs
  • Negativity bias
  • Stock market participation

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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