Fundamental strength and the 52-week high anchoring effect

When stocks are trading near their 52-week high investors tend to have low expectation about future returns. We contrast such expectations against firms’ fundamental strength. For firms with strong fundamentals, we confirm that investors’ too low, which is consistent the hypothesis acts as a psychological anchor. report fundamental-strength enhanced strategy significantly outperform unconditional by nearly doubling its average return. Moreover, provide interesting evidence this anomalous effect most evident when investor sentiment high, but absent among more sophisticated institutions and short sellers.