Skewness-seeking behavior and financial investments

Matteo Benuzzi () and Matteo Ploner
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Matteo Benuzzi: University of Trento

Annals of Finance, 2024, vol. 20, issue 1, No 4, 129-165

Abstract: Abstract Recent theoretical and empirical advancements highlight the pivotal role played by higher-order moments, such as skewness, in shaping financial decision-making. Nevertheless, contemporary experimental research predominantly relies on limited-outcome lotteries, an oversimplified representation distant from real-world investment dynamics. To bridge this research gap, we conducted a rigorously pre-registered experiment. Our study delves into individuals’ preferences for investment opportunities, examining the influence of skewness of continuous probability distributions of returns. We document an inclination towards positively skewed outcome distributions. Furthermore, we uncovered a substitution effect between risk appetite and the sign of skewness. Finally, we unveiled a robust positive correlation between skewness-seeking behavior and a propensity for speculative behavior. Simultaneously, a distinct negative correlation surfaced between skewness-seeking behavior and the perceived risk associated with positive skewness.

Keywords: Skewness; Risk-taking; Stochastic dominance; Experiment (search for similar items in EconPapers)
JEL-codes: C91 D81 G11 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10436-023-00437-y

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