How risky do I invest: The role of risk attitudes, risk perceptions, and overconfidence

Nosic, Alen ; Weber, Martin

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URN: urn:nbn:de:bsz:180-madoc-29842
Document Type: Working paper
Year of publication: 2010
The title of a journal, publication series: None
Place of publication: Mannheim
Publication language: English
Institution: Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Publications
Subject: 330 Economics
Classification: JEL: G1 ,
Subject headings (SWD): Investitionsverhalten , Investitionsrisiko , Anlageverhalten
Keywords (English): Overconfidence , optimism, risk attitude , risk perception , risk taking , domain specificity
Abstract: Our study analyzes the determinants of investors' risk taking behavior. We find that investors' risk taking behavior is affected by their subjective risk attitude and by the risk and return of an investment alternative. Our results also suggest that consistent with previous findings in the literature objective or historical return and volatility of a stock are not as good predictors of risk taking behavior as subjective risk and return measures. Moreover, we illustrate that overconfidence or more precisely miscalibration has an impact on risk behavior as predicted by theoretical models. However, our results regarding the effect of various determinants on risk taking behavior heavily depends on the domain the respective determinant is elicited. We interpret this as an indication for an extended domain specificity. In particular with the Markets of Financial Instruments Directive (MiFID) coming into effect we believe practitioners could improve on their investment advising process by incorporating some of the determinants we argue to influence investment behavior.
Additional information: Available at SSRN:

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