scholarly journals Institutional Investors, Past Performance, and Dynamic Loss Aversion

2009 ◽  
Vol 44 (1) ◽  
pp. 155-188 ◽  
Author(s):  
Paul G. J. O’Connell ◽  
Melvyn Teo
Keyword(s):  
Risk Taking ◽  
Loss Aversion ◽  
Institutional Investors ◽  
Disposition Effect ◽  
Past Performance ◽  
Increase Risk ◽  
Reduce Risk ◽  
Proprietary Database ◽  
Dynamic Loss ◽  
Gains And Losses

AbstractUsing a proprietary database of currency trades, this paper explores the effects of trading gains and losses on risk-taking among large institutional investors. We find that institutional investors, unlike individuals, are not prone to the disposition effect. Instead, institutions aggressively reduce risk following losses and mildly increase risk following gains. This asymmetry is more pronounced later in the calendar year and among older and more experienced funds. We show that such performance dependence is consistent with dynamic loss aversion (Barberis, Huang, and Santos (2001)) and overconfidence. In addition, prior institutional gains and losses have palpable implications for future prices.

Governance and risk-taking in conventional and Islamic banks

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Siew Peng Lee ◽  
Mansor Isa ◽  
Rubi Ahmad ◽  
Obiyathulla Ismath Bacha
Keyword(s):  
Risk Taking ◽  
Independent Directors ◽  
Islamic Banks ◽  
Content Type ◽  
Multiple Directorships ◽  
Increase Risk ◽  
Reduce Risk ◽  
Risk Committee ◽  
Relationship Of ◽  
Conventional And Islamic Banks

PurposeThe purpose of this study is to examine the relationship of the board and risk committee in respect of risk-taking in conventional and Islamic banks in Malaysia.Design/methodology/approachThis study uses unbalanced panel data for 15 conventional and 14 Islamic banks over the period 2007–2016. The generalised least squares random effects technique is applied.FindingsThe evidence shows that independent directors and frequency of board meetings reduce risk-taking but that the number of directors with finance and banking experience and those with multiple directorships tend to increase risk-taking. The findings also indicate that the size of the risk committee, the number of directors on the risk committee and the appointment of a designated risk officer tends to reduce risk-taking in banks. By comparing conventional and Islamic banks, the findings show that Islamic banks have lower exposure to portfolio risk but higher insolvency risk.Practical implicationsThe findings in this study suggest that the board and risk committee have an impact on bank risk-taking. The implications for management include having more independent directors, fewer directors with multiple board memberships and having an efficient risk committee in order to reduce risks. Regulators should look into the issue of multiple directorships as this is positively related to risk-taking. Islamic banks should expand their operations as our findings indicate that bigger banks are better able to manage risk.Originality/valueThis study covers bank governance and risk committee, which are crucial in influencing the risk-taking behaviour of conventional and Islamic banks.

scholarly journals The disposition effect in shares trading

2018 ◽  
Vol 16 (1) ◽  
pp. 33-39
Author(s):  
Manas Mayur
Keyword(s):  
Loss Aversion ◽  
Disposition Effect ◽  
Individual Investors ◽  
Financial Assets ◽  
Factors Affecting ◽  
Incremental Value ◽  
Trading Volumes ◽  
Indian Stock Market ◽  
Regret Aversion ◽  
Gains And Losses

The disposition effect is related to the way investors tend to treat unrealized gains and losses on financial assets. In particular, the research found that investors have the tendency to realize gains more quickly than losses. Shefrin and Statman (1985) found that people dislike losing significantly more than they enjoy winning. The disposition effect has been described as “one of the most robust facts about the trading of individual investors" because investors will hold stocks that have lost value yet sell stocks that have gained value. In 1979, Daniel Kahneman and Amos Tversky traced the cause of the disposition effect to the so-called "prospect theory". Given the significance of disposition effect and its impact on investment decisions, the present study investigates factors affecting the disposition effect in the Indian stock market. The results of the study indicate that loss aversion, regret aversion, trading volumes, automatic selling and incremental value of holding positively contribute to the disposition effect.

scholarly journals Consumption and Portfolio Choice Under Loss Aversion and Endogenous Updating of the Reference Level

2020 ◽  
Vol 66 (9) ◽  
pp. 3927-3955 ◽  
Author(s):  
Servaas van Bilsen ◽  
Roger J. A. Laeven ◽  
Theo E. Nijman
Keyword(s):  
Portfolio Choice ◽  
Risk Taking ◽  
Loss Aversion ◽  
Investment Strategy ◽  
Risk Exposure ◽  
Reference Level ◽  
Current Consumption ◽  
Reduce Risk ◽  
Normal States ◽  
The Individual

We explicitly derive and explore the optimal consumption and portfolio policies of a loss-averse individual who endogenously updates his or her reference level over time. We find that the individual protects current consumption by delaying painful reductions in consumption after a drop in wealth, and increasingly so with higher degrees of endogeneity. The incentive to protect current consumption is stronger with a medium wealth level than with a high or low wealth level. Furthermore, this individual adopts a conservative investment strategy in normal states and typically a more aggressive strategy in good and bad states. Endogeneity of the reference level increases overall risk-taking and generates an incentive to reduce risk exposure with age even without human capital. The welfare loss that this individual would suffer under the conventional constant relative risk aversion (CRRA) consumption and portfolio policies easily exceeds 10%. This paper was accepted by Tyler Shumway, finance.

How Institutional Investors Frame Their Losses:Evidence on Dynamic Loss Aversion from Currency Portfolios

2011 ◽  
pp. 110929234837000
Author(s):  
Kenneth Froot ◽  
John Arabadjis ◽  
Sonya Cates ◽  
Stephen Lawrence
Keyword(s):  
Loss Aversion ◽  
Institutional Investors ◽  
Dynamic Loss

scholarly journals Testosterone increases risk-taking for status but not for money

2020 ◽  
Author(s):  
Annabel B Losecaat Vermeer ◽  
Maarten Boksem ◽  
Christian Gausterer ◽  
Christoph Eisenegger ◽  
Claus Lamm
Keyword(s):  
Social Status ◽  
Risk Taking ◽  
Risk Preferences ◽  
Social Rank ◽  
Increased Risk ◽  
Status Seeking ◽  
Increase Risk ◽  
Testosterone Administration ◽  
Gains And Losses

Testosterone has long been thought to increase risk-taking, but evidence supporting this association is mixed. Instead, testosterone’s key role may be to promote status-seeking behaviors. Here, we examined to what extent testosterone administration affects risk preferences for both monetary and social status outcomes, and whether this relationship is moderated by an individuals’ social status. Male participants (N=166) experienced high or low status in a competition task and then played two risk tasks; one involving gambles with only monetary outcomes, and another one involving gambles with non-monetary outcomes that influenced their social rank. We found that testosterone (vs. placebo) altered risk preferences for gains and losses in social rank, but not for monetary gains and losses. Specifically, testosterone increased risk-taking to increase social rank in individuals with high, but not low social status. These results demonstrate a context-dependent role of testosterone in regulating risk-taking for social status.

Contingent gains and losses in a risk taking situation

1964 ◽  
Author(s):  
Jerome L. Myers ◽  
Mary M. Suydam ◽  
Blase Gambino
Keyword(s):  
Risk Taking ◽  
Gains And Losses

scholarly journals A regret-based route choice model with asymmetric preference in a stochastic network

2018 ◽  
Vol 10 (8) ◽  
pp. 168781401879323
Author(s):  
Lei Zhao ◽  
Hongzhi Guan ◽  
Xinjie Zhang ◽  
Xiongbin Wu
Keyword(s):  
Loss Aversion ◽  
Equilibrium Model ◽  
Choice Model ◽  
User Equilibrium ◽  
Stochastic User Equilibrium ◽  
Regret Minimization ◽  
Route Network ◽  
Travel Decision ◽  
Gains And Losses ◽  
Random Regret Minimization

In this study, a stochastic user equilibrium model on the modified random regret minimization is proposed by incorporating the asymmetric preference for gains and losses to describe its effects on the regret degree of travelers. Travelers are considered to be capable of perceiving the gains and losses of attributes separately when comparing between the alternatives. Compared to the stochastic user equilibrium model on the random regret minimization model, the potential difference of emotion experienced induced by the loss and gain in the equal size is jointly caused by the taste parameter and loss aversion of travelers in the proposed model. And travelers always tend to use the routes with the minimum perceived regret in the travel decision processes. In addition, the variational inequality problem of the stochastic user equilibrium model on the modified random regret minimization model is given, and the characteristics of its solution are discussed. A route-based solution algorithm is used to resolve the problem. Numerical results given by a three-route network show that the loss aversion produces a great impact on travelers’ choice decisions and the model can more flexibly capture the choice behavior than the existing models.

scholarly journals Prey reduce risk-taking and abundance in the proximity of predators

2016 ◽  
pp. zow114 ◽  
Author(s):  
Anders. P. Møller ◽  
Zbigniew Kwiecinski ◽  
Piotr Tryjanowski
Keyword(s):  
Risk Taking ◽  
Reduce Risk
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