Bank Risk-Taking in a Prospect Theory Framework Empirical Investigation in the Emerging Markets’ Case

Christophe Godlewski

Finance from University Library of Munich, Germany

Abstract: The purpose of this paper is to investigate the validity of some behavioral conjectures as alternative explanations of bank risk-taking behavior. We especially focus on the different valuation of gains and losses relative to a reference point, and the changing attitude toward risk conditional on the domain (gains vs losses) features (Tversky and Kahneman 1992). We follow a methodology based on Fiegenbaum and Thomas (1988) and the Fishburn (1977) measure of risk, applied to a sample of banks from emerging market economies. Preliminary results show that the Tversky and Kahneman (1992) framework could provide an alternative for explaining risk-taking behavior in the banking industry. Bankers located above benchmark levels, exhibit risk aversion. Although, further investigations are needed in order to consolidate our conclusions.

Keywords: Cumulative Prospect Theory; bank risk taking; emerging market economies (search for similar items in EconPapers)
JEL-codes: C12 C31 D81 F39 G21 (search for similar items in EconPapers)
Date: 2004-09-08
New Economics Papers: this item is included in nep-cbe and nep-fin
Note: Type of Document - pdf
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0409024

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