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Communicating asset risk : how the format of historic volatility information affects risk perception and investment decisions

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  • Siebenmorgen, Niklas
  • Weber, Elke U.
  • Weber, Martin

Abstract

An experiment examined the effect that the type and presentation format of information about investment options have on expectations held by investors about asset risk, returns, and volatility. Some respondents were provided with the names of investment options in addition to historical (1987-97) volatility data, and some were not. Historical volatility was presented either as a bar graph of returns per year or as a continuous density distribution of returns over the 10-year period. Risk and volatility perceptions both varied significantly as a function of type and format of information, but in different ways. Biases in risk perception, but not in volatility forecasts, affected portfolio decisions.

Suggested Citation

  • Siebenmorgen, Niklas & Weber, Elke U. & Weber, Martin, 2000. "Communicating asset risk : how the format of historic volatility information affects risk perception and investment decisions," Papers 00-38, Sonderforschungsbreich 504.
    • Handle: RePEc:mnh:spaper:2823
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    File URL: https://madoc.bib.uni-mannheim.de/2823/1/dp00_38.pdf
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    References listed on IDEAS

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    1. Sarin, Rakesh K. & Weber, Martin, 1993. "Risk-value models," European Journal of Operational Research, Elsevier, vol. 70(2), pages 135-149, October.
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    3. Siebenmorgen, Niklas & Weber, Martin, 2000. "A Behavioral Approach to the Asset Allocation Puzzle," Sonderforschungsbereich 504 Publications 00-46, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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