Behavioral heterogeneity in return expectations across equity style portfolios

Philip A. Stork, Milan Vidojevic, Remco C.J. Zwinkels*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review


We estimate a heterogeneous agent model on five prominent equity investment styles—value, size, profitability, investment, and momentum—and find evidence for behavioral heterogeneity in expected return formation. Our model features two groups of boundedly rational investors, fundamentalists and chartists, whose demand functions for the investment styles depend on their respective expected style return forecasts. The fundamentalists form return expectations using a model based on time-varying stock-level characteristics and dynamic factor premia, and the chartists do so based on heuristics commonly employed by technical analysts, such as moving average rules. Our results cast doubt on the theories that assume perfect rationality of the representative agent in financial markets, and give support to the behavioral theories with heterogeneous agents.

Original languageEnglish
Pages (from-to)1225-1250
Number of pages26
JournalInternational Review of Finance
Issue number4
Publication statusPublished - 2021


  • asset pricing
  • behavioral finance
  • heterogeneous agent models
  • style investing

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