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The risk perceptions of individual investors


  • Veld, Chris
  • Veld-Merkoulova, Yulia V.


Risk perceptions of individual investors are studied by asking experimental questions to 2226 members of a consumer panel. Their responses are analyzed in order to find which risk measures they implicitly use. We find that most investors implicitly use more than one risk measure. For those investors who systematically perceive risk according to the same risk measure, semi-variance of returns is most popular. Semi-variance is similar to variance, but only negative deviations from the mean or another benchmark are taken into account. Stock investors implicitly choose for semi-variance as a risk measure, while bond investors favor probability of loss. Investors state that they consider the original investment to be the most important benchmark, followed by the risk-free rate of return, and the market return. However, their choices in the experimental questionnaire study reveal that the market return is the most important benchmark.

Suggested Citation

  • Veld, Chris & Veld-Merkoulova, Yulia V., 2008. "The risk perceptions of individual investors," Journal of Economic Psychology, Elsevier, vol. 29(2), pages 226-252, April.
  • Handle: RePEc:eee:joepsy:v:29:y:2008:i:2:p:226-252

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    References listed on IDEAS

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    Cited by:

    1. Necker, Sarah & Ziegelmeyer, Michael, 2016. "Household risk taking after the financial crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 141-160.
    2. Shafi, Haroon & Akram, Muhammad & Hussain, Mubashir & Sajjad, Syed Imran & Rehman, Kashif Ur, 2011. "Relationship between risk perception and employee investment behavior," MPRA Paper 53849, University Library of Munich, Germany.
    3. Rui Ding, 2016. "Disclosure of Downside Risk and Investors' Use of Qualitative Information: Evidence from the IPO Prospectus's Risk Factor Section," International Review of Finance, International Review of Finance Ltd., vol. 16(1), pages 73-126, March.
    4. David Morton de Lachapelle & Damien Challet, 2009. "Turnover, account value and diversification of real traders: evidence of collective portfolio optimizing behavior," Papers 0912.4723,, revised Jun 2010.
    5. Lee, Boram & Veld-Merkoulova, Yulia, 2016. "Myopic loss aversion and stock investments: An empirical study of private investors," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 235-246.
    6. Sachse, Katharina & Jungermann, Helmut & Belting, Julia M., 2012. "Investment risk – The perspective of individual investors," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 437-447.
    7. repec:bla:acctfi:v:57:y:2017:i:3:p:759-788 is not listed on IDEAS
    8. Jürgen Huber & Stefan Palan & Stefan Zeisberger, 2017. "Does Investor Risk Perception Drive Asset Prices in Markets? Experimental Evidence," Working Paper Series, Social and Economic Sciences 2017-05, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    9. Galit Klein & Ze’ev Shtudiner, 2016. "Trust in others: does it affect investment decisions?," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(5), pages 1949-1967, September.
    10. Kaplanski, Guy & Levy, Haim & Veld, Chris & Veld-Merkoulova, Yulia, 2016. "Past returns and the perceived Sharpe ratio," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 149-167.
    11. Tavakoli Baghdadabad, Mohammad Reza, 2014. "Average drawdown risk reduction and risk tolerances," Research in Economics, Elsevier, vol. 68(3), pages 264-276.
    12. Anthonisz, Sean A., 2012. "Asset pricing with partial-moments," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2122-2135.
    13. Alexandros Kostakis & Nikolaos Panigirtzoglou & George Skiadopoulos, 2011. "Market Timing with Option-Implied Distributions: A Forward-Looking Approach," Management Science, INFORMS, vol. 57(7), pages 1231-1249, July.
    14. Veld-Merkoulova, Yulia V., 2011. "Investment horizon and portfolio choice of private investors," International Review of Financial Analysis, Elsevier, vol. 20(2), pages 68-75, April.
    15. repec:eee:riibaf:v:42:y:2017:i:c:p:674-688 is not listed on IDEAS
    16. repec:eee:ecmode:v:64:y:2017:i:c:p:449-464 is not listed on IDEAS
    17. Tee, Kai-Hong, 2009. "The effect of downside risk reduction on UK equity portfolios included with Managed Futures Funds," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 303-310, December.
    18. repec:eee:eneeco:v:66:y:2017:i:c:p:493-507 is not listed on IDEAS

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