Time varying risk aversion

Luigi Guiso, Paola Sapienza and Luigi Zingales

Journal of Financial Economics, 2018, vol. 128, issue 3, 403-421

Abstract: Exploiting portfolio data and repeated surveys of an Italian bank's clients, we test whether investors’ risk aversion increases following the 2008 crisis. We find that, after the crisis, both qualitative and quantitative measures of risk aversion increase substantially and that affected individuals divest more stock. We investigate four explanations: changes in wealth, expected income, perceived probabilities, and emotion-based changes of the utility function. Our data are inconsistent with the first two channels, while they suggest that fear is a potential mechanism underlying financial decisions, whether by increasing the curvature of the utility function or the salience of negative outcomes.

JEL-codes: D91 G11 G41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (228)

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Related works:
Working Paper: Time Varying Risk Aversion (2013)
Working Paper: Time Varying Risk Aversion (2013)
Working Paper: Time Varying Risk Aversion (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:128:y:2018:i:3:p:403-421

DOI: 10.1016/j.jfineco.2018.02.007

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