Communicating Asset Risk: How the format of historic volatility information affects risk perception and investment decisions
AbstractAn 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.
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Bibliographic InfoPaper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 00-38.
Length: 32 pages
Date of creation: 14 Aug 2000
Date of revision:
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-07-13 (All new papers)
- NEP-CFN-2001-07-13 (Corporate Finance)
- NEP-EXP-2001-07-13 (Experimental Economics)
- NEP-FIN-2001-07-13 (Finance)
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