Gambler's attention and the mean-variance relation: Evidence from China

Jing Yao and Lingyan Wu

Finance Research Letters, 2017, vol. 23, issue C, 233-238

Abstract: Research from psychology suggests that gambler's fallacy and limited attention matter for individual decision making involving risk. We dub this combination “gambler's attention” and use it to provide a behavioral perspective on the debate over the market's mean-variance relation. A gambler's attention index is developed to divide the sample period into high-attention and low-attention regimes. Using data from China, we find clear-cut evidence that the market's mean-variance relation is significantly positive in low-attention periods but not in high-attention periods. The results are consistent with the notion that gambler's attention undermines an otherwise positive risk-return tradeoff in high-attention periods.

Keywords: Limited attention; Gambler's fallacy; Risk-return tradeoff; Behavioral finance (search for similar items in EconPapers)
JEL-codes: G02 G12 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:23:y:2017:i:c:p:233-238

DOI: 10.1016/j.frl.2017.07.016

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