Evidence for Countercyclical Risk Aversion: An Experiment with Financial Professionals

Countercyclical Risk Aversion Can Explain Major Puzzles Such as the High Volatility of Asset Prices. Evidence for its Existence is However, Scarce Because of the Host of Factors that Simultaneously Change During Financial Cycles. We Circumvent these Problems by Priming Financial Professionals with E...

Full description

Saved in:
Bibliographic Details
Published inThe American economic review Vol. 105; no. 2; pp. 860 - 885
Main Authors Cohn, Alain, Engelmann, Jan, Fehr, Ernst, Maréchal, Michel André
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.02.2015
American Economic Assoc
Subjects
Ambiguity
Assets
Countercyclicality
Economic busts
Economics
Electrical injuries
Endowment
Fear
Financial investments
Financial services
Habits
Investment policy
Investment risk
Investments
Investors
Literacy
Prices
Pricing
Risk aversion
Risk management
Risk taking
Securities markets
Studies
Volatility
Online AccessGet full text

Cover

More Information
Summary:Countercyclical Risk Aversion Can Explain Major Puzzles Such as the High Volatility of Asset Prices. Evidence for its Existence is However, Scarce Because of the Host of Factors that Simultaneously Change During Financial Cycles. We Circumvent these Problems by Priming Financial Professionals with Either a Boom or a Bust Scenario. Subjects Primed with a Financial Bust were Substantially More Fearful and Risk Averse than those Primed with a Boom, Suggesting that fear may play an Important Role in Countercyclical Risk Aversion. The Mechanism Described here is Relevant for Theory and may Explain Self-reinforcing Processes That Amplify Market Dynamics.
Bibliography:SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 14
ObjectType-Article-1
ObjectType-Feature-2
content type line 23
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20131314