Why people choose negative expected return assets - an empirical examination of a utility theoretic explanation
AbstractUsing a theoretical extension of the Friedman and Savage (1948) utility function developed in Bhattacharyya (2003), we predict that for financial assets with negative expected returns, expected return will be a declining and convex function of skewness. Using a sample of U.S. state lottery games, we find that our theoretical conclusions are supported by the data. Our results have external validity as they also hold for an alternative and more aggregated sample of lottery game data.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-014.
Date of creation: 2006
Date of revision:
Other versions of this item:
- N. Bhattacharya & T. A. Garrett, 2008. "Why people choose negative expected return assets - an empirical examination of a utility theoretic explanation," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 27-34.
- NEP-ALL-2006-04-01 (All new papers)
- NEP-FMK-2006-04-01 (Financial Markets)
- NEP-UPT-2006-04-01 (Utility Models & Prospect Theory)
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