Risk-taking and asymmetric learning in boom and bust markets

Kieren, Pascal ; Müller-Dethard, Jan ; Weber, Martin

DOI: https://doi.org/10.1093/rof/rfac072
URL: https://academic.oup.com/rof/article/27/5/1743/680...
Document Type: Article
Year of publication: 2022
The title of a journal, publication series: Review of Finance
Volume: 27
Issue number: 5
Page range: 1743-1779
Place of publication: Oxford
Publishing house: Oxford Univ. Press
ISSN: 1572-3097 , 1573-692X
Publication language: English
Institution: Business School > ABWL u. Bankbetriebslehre (Seniorprofessur) (Weber 2017-)
Subject: 330 Economics
Classification: JEL: D83 , D84 , E32 , E44 , G01 , G11 , G41,
Keywords (English): risk-taking , belief formation , market cycles , return expectations
Abstract: An increasing number of studies depart from the rational expectations assumption to reconcile survey expectations with asset prices. While surveys are helpful to establish a link between subjective beliefs and investment decisions, they do not allow inference about how investors depart from rational expectations. In this paper, we provide direct experimental evidence of how systematic distortions in investors’ expectations affect their risk-taking across market cycles. As mechanism, we identify an asymmetry in how individuals update their expectations across boom and bust markets. The documented mechanism is consistent with survey data and provides important implications for recently proposed asset pricing models.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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