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Beliefs-dependent utilities do influence firm-specific wealth (executives’ inside equity holdings)

Muna Ibrahim Alsheikh

Journal of Economics and Business, 2020, vol. 109, issue C

Abstract: This paper studies how beliefs-dependent risk aversion and information align with firm-specific wealth, “executives’ inside equity holdings.” It primarily uses the information risk premium (IRP), defined as the product of the volatility component, which is calculated by the information factor (e.g. consumption, dividends, and macroeconomic variables) and the market price of risk. The results conclude that IRP is 76 % inversely correlated with firm-specific wealth that explains how individuals govern their investment decisions based on beliefs beyond company and market investment analysis reports, explicitly, both during and after the 2007–2009 financial crisis. The results suggest that the financial market must recognize the importance of psychological forces in financial evaluations.

Keywords: Beliefs-dependent utilities; Information risk premium (IRP); Executives’ inside equity holdings; Executives’ consumption; Consumption (search for similar items in EconPapers)
JEL-codes: G11 G30 G41 M12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jeconbus.2020.105892

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