Behavioral Biases and Investment
We investigate the way investors react to prior gains/losses. We directly examine investor reactions to different definitions of gains and losses (i.e., overall wealth, paper gains and losses, and realized capital gains and losses) and investigate how gains and losses in one category of wealth (e.g., real estate) affect holdings in other categories (e.g., financial assets). We show that investors change their holdings of risky assets as a function of both financial and real estate gains. Prior gains increase risk-taking, while prior losses reduce it. To interpret our results, we consider and compare three alternative hypotheses of investor behavior: prospect theory, house money effect and standard utility theory with decreasing risk aversion. Our evidence fails to support loss aversion, pointing in the direction of the house money effect or standard utility theory. Investors consider wealth in its entirety, and risk-taking in financial markets is affected by gains/losses in overall wealth, financial wealth, and real estate wealth. Copyright Springer 2005
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 9 (2005)
Issue (Month): 4 (December)
|Contact details of provider:|| Web page: http://springer.com|
|Order Information:||Web: http://www.springer.com/finance/journal/10679|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Laurent Calvet & Martin Gonzalez-Eiras & Paolo Sodini, 2001.
"Financial Innovation, Market Participation and Asset Prices,"
Harvard Institute of Economic Research Working Papers
1928, Harvard - Institute of Economic Research.
- Calvet, Laurent & Gonzalez-Eiras, Martín & Sodini, Paolo, 2004. "Financial Innovation, Market Participation, and Asset Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(03), pages 431-459, September.
- Calvet, Laurent & Gonzalez-Eiras, Martin & Sodini, Paolo, 2001. "Financial Innovation, Market Participation and Asset Prices," SSE/EFI Working Paper Series in Economics and Finance 464, Stockholm School of Economics.
- Laurent Calvet & Martin Gonzalez-Eiras & Paolo Sodini, 2003. "Financial Innovation, Market Participation and Asset Prices," NBER Working Papers 9840, National Bureau of Economic Research, Inc.
- Martin Gonzalez Eiras & Laurent Calvet & Paolo Sodini, 2004. "Financial Innovation, Market Participation, and Asset Prices," Working Papers 76, Universidad de San Andres, Departamento de Economia, revised Sep 2004.
- Laurent-Emmanuel Calvet & Martin Gonzales-Eiras & Paolo Sodini, 2004. "Financial Innovation, Market Participation, and Asset Prices," Post-Print hal-00478480, HAL.
- Edin, P.-A. & Fredriksson, P., 2000.
"LINDA - Longitudinal INdividual DAta for Sweden,"
2000-19, Uppsala - Working Paper Series.
- Edin, Per-Anders & Fredriksson, Peter, 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Working Paper Series 2000:19, Uppsala University, Department of Economics.
- Edin, P.-A. & Fredriksson, P., 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Papers 2000:19, Uppsala - Working Paper Series.
When requesting a correction, please mention this item's handle: RePEc:kap:eurfin:v:9:y:2005:i:4:p:483-507. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.