IDEAS home Printed from https://ideas.repec.org/a/cup/judgdm/v13y2018i5p471-483_8.html
   My bibliography  Save this article

Time-varying risk behavior and prior investment outcomes: Evidence from Italy

Author

Listed:
  • Lippi, Andrea
  • Barbieri, Laura
  • Piva, Mariacristina
  • De Bondt, Werner

Abstract

Risk behavior can be capricious and may vary from month to month. We study 62 clients of a private bank in Northern Italy. The individuals are of special interest for several reasons. As active traders, they manage the value-at-risk (VaR) of a portion of their wealth portfolios. In addition, they act alone, i.e., without input from a financial adviser. Based on VaR-statistics, we find that, in general, the subjects become more risk-averse after suffering losses and more risk-seeking after experiencing gains. The monthly gains and losses that alter investor risk behavior represent true changes in wealth but are “on paper” only, i.e., not immediately realized. Our results allow several interpretations, but they are not at odds with a house money effect, or the possibility that overconfident investors trade on illusions. Rapidly shifting risk behavior in fast response to unstable circumstances weakens individual risk tolerance as a deep parameter and key construct of finance theory.

Suggested Citation

  • Lippi, Andrea & Barbieri, Laura & Piva, Mariacristina & De Bondt, Werner, 2018. "Time-varying risk behavior and prior investment outcomes: Evidence from Italy," Judgment and Decision Making, Cambridge University Press, vol. 13(5), pages 471-483, September.
    • Handle: RePEc:cup:judgdm:v:13:y:2018:i:5:p:471-483_8
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S1930297500008755/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:judgdm:v:13:y:2018:i:5:p:471-483_8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jdm .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.