Communicating asset risk : how the format of historic volatility information affects risk perception and investment decisions

Siebenmorgen, Niklas ; Weber, Elke U. ; Weber, Martin

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URN: urn:nbn:de:bsz:180-madoc-28233
Document Type: Working paper
Year of publication: 2000
The title of a journal, publication series: Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung
Volume: 00-38
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Subject headings (SWD): Deutschland , USA , Investitionspolitik , Portfoliomanagement , Risiko , Volatilität , Wahrnehmung , Bias
Keywords (English): Risk perception , volatility forecasts , portfolio decisions , behavioral finance
Abstract: An experiment examined the effect that the type and presentation format of information about investment options have on expectations held by investors about asset risk, returns, and volatility. Some respondents were provided with the names of investment options in addition to historical (1987-97) volatility data, and some were not. Historical volatility was presented either as a bar graph of returns per year or as a continuous density distribution of returns over the 10-year period. Risk and volatility perceptions both varied significantly as a function of type and format of information, but in different ways. Biases in risk perception, but not in volatility forecasts, affected portfolio decisions.
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