All you need to know about halos and investment performance

Read "Affect in a Behavioral Asset-Pricing Model" in the Financial Analysts Journal by Meir Statman, Kenneth L. Fisher, and Anginer. I don't know Fisher or Anginer, but I know Statman knows his stuff. You'll need a login/pw to read the full text on CFA Publications or read selected portions from the abstract/summary below:

"We outline a behavioral asset-pricing model in which expected returns are high when objective risk is high and also when subjective risk is high. Investors prefer stocks with positive affect, and their preference boosts the prices of such stocks and depresses their subsequent returns. The preferences of investors were gathered from surveys conducted by Fortune magazine in 1983--2006 and in additional surveys we conducted in 2007. From the Fortune data, the authors found that the returns of admired stocks, those highly rated by the Fortune respondents, were lower than the returns of spurned stocks, those rated low. This finding is consistent with the hypothesis that stocks with negative affect have high subjective risk and their extra returns compensate for that risk. In these surveys, we presented investors with only the names of companies and their industries and asked them to rate the affect of these companies. The questionnaire said, "Look at the name of the company and its industry and quickly rate the feeling associated with it on a scale ranging from bad to good. We found a positive correlation between these affect scores and the companies' Fortune scores. Moreover, we found that positive affect creates a halo over stocks that results in perceptions that they promise high future returns coupled with low risk." FAJ, March/April 2008, Vol. 64, No. 2: 20-29