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Time Varying Risk Aversion / Luigi Guiso, Paola Sapienza, Luigi Zingales.
- Format:
- Book
- Author/Creator:
- Guiso, Luigi.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w19284.
- NBER working paper series no. w19284
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2013.
- Summary:
- We use a repeated survey of an Italian bank's clients to test whether investors' risk aversion increases following the 2008 financial crisis. We find that both a qualitative and a quantitative measure of risk aversion increases substantially after the crisis. After considering standard explanations, we investigate whether this increase might be an emotional response (fear) triggered by a scary experience. To show the plausibility of this conjecture, we conduct a lab experiment. We find that subjects who watched a horror movie have a certainty equivalent that is 27% lower than the ones who did not, supporting the fear-based explanation. Finally, we test the fear-based model with actual trading behavior and find consistent evidence.
- Notes:
- Print version record
- August 2013.
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