1. A bias within the
dividend discount model in which the model favors certain
stocks. The dividend discount model is a method for
valuing stock according to the
present value of future
dividends. Because of attribute bias, the model tends to rate more highly stocks with high
dividend yields, and low
P/E ratios.
2. More broadly, a situation in which any model rates
securities that share similar characteristics more highly. Some analysts caution against this bias because it eliminates some of the benefits of
diversification, though others believe that attribute bias poses little problem as long as the securities have strong
fundamentals.