Emotional investors demand high equity premium, impacting stock market stability.
The article explores why investors demand high returns on stocks and why they prefer risky investments over safe ones. By studying stock market data from the US and Germany, the researchers found that emotional investors who follow a specific theory and use mental accounts tend to want higher returns on stocks. This is because they are influenced by their emotions and how they perceive gains and losses. These findings suggest that investors' emotions play a significant role in determining stock prices and returns.