Target Returns and Negative Interest Rates
Rudy De Winne and
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D’Hondt, Catherine: Université catholique de Louvain, LIDAM/LFIN, Belgium
Aleksandar Todorovic: Université catholique de Louvain, LIDAM/LFIN, Belgium
No 2021011, LIDAM Discussion Papers LFIN from Université catholique de Louvain, Louvain Finance (LFIN)
In this paper, we question whether it is the zero interest rate level or the target return that most impacts the risk-taking behavior of individuals when making investment decisions. In our experiment, we assign either a low or a high target return to participants and ask them to make independent investment decisions as the risk-free rate fluctuates around their target return and, for some of them, becomes negative. We find that the prevailing reference point is the target return, regardless of the level of the risk-free rate. This result still holds even when the risk-free rate is negative, suggesting that the target return drives risk-taking more than does a zero interest rate.
Keywords: Negative interest rates; Risk-taking; Target return (search for similar items in EconPapers)
JEL-codes: G11 G21 G40 G41 G51 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlf:2021011
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