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The Influence of Different Investment Horizons on Risk Behavior

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Author Info
Siebenmorgen, Niklas () (Graduiertenkolleg Finanz-/Gütermärkte)
Weber, Martin () (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)
Abstract

For a longer investment period investment consultants use to recommend a larger proportion of risky assets in investors' portfolios. In an experiment we examine the effect of different investment horizons on investors' risk behavior. We are interested both in the participants' risk perception behavior and in their asset allocation behavior. Furthermore, we examine framing effects regarding the presentation of historical one-year versus five-year returns to our participants. As before we find significant underestimations of long-term risks in all informational conditions that lead to a higher proportion of risky assets in the long-term portfolios. One explanation for this behavior is the belief in mean reversion, as our data show.

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Publisher Info
Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 00-48.

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Length: 42 pages
Date of creation: 18 Oct 2000
Date of revision:
Handle: RePEc:xrs:sfbmaa:00-48

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  1. Terrell, Dek, 1998. "Biases in Assessments of Probabilities: New Evidence from Greyhound Races," Journal of Risk and Uncertainty, Springer, vol. 17(2), pages 151-66, November. [Downloadable!] (restricted)
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  3. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October. [Downloadable!] (restricted)
  4. De Bondt, Werner F M & Thaler, Richard H, 1989. "A Mean-Reverting Walk Down Wall Street," Journal of Economic Perspectives, American Economic Association, vol. 3(1), pages 189-202, Winter. [Downloadable!] (restricted)
  5. Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August. [Downloadable!] (restricted)
  6. Shefrin, Hersh & Statman, Meir, 1985. " The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-90, July. [Downloadable!] (restricted)
  7. Albrecht, Peter & Maurer, Raimond, 2000. "100% Aktien zur Altersvorsorge - Über die Langfristrisiken einer Aktienanlage," Sonderforschungsbereich 504 Publications 00-05, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  8. Weber, Martin & Camerer, Colin F., 1998. "The disposition effect in securities trading: an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 167-184, January. [Downloadable!] (restricted)
  9. Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 73-92, February. [Downloadable!] (restricted)
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  10. Siebenmorgen, Niklas & Weber, Elke U. & Weber, Martin, 2000. "Communicating Asset Risk: How the format of historic volatility information affects risk perception and investment decisions," Sonderforschungsbereich 504 Publications 00-38, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  11. Gneezy, Uri & Potters, Jan, 1997. "An Experiment on Risk Taking and Evaluation Periods," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 631-45, May.
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