Communicating Asset Risk: How the format of historic volatility information affects risk perception and investment decisions
Niklas Siebenmorgen (),
Elke U. Weber () and
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Niklas Siebenmorgen: Graduiertenkolleg Finanz-/Gütermärkte, Postal: L 13, 15, D-68131 Mannheim
Elke U. Weber: Columbia University, Postal: Schermerhorn Hall (MC-5501), 1190 Amsterdam Avenue, New York, NY 10027, USA
No 00-38, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim
An experiment examined the effect that the type and presentation format of information about investment options have on expectations held by investors about asset risk, returns, and volatility. Some respondents were provided with the names of investment options in addition to historical (1987-97) volatility data, and some were not. Historical volatility was presented either as a bar graph of returns per year or as a continuous density distribution of returns over the 10-year period. Risk and volatility perceptions both varied significantly as a function of type and format of information, but in different ways. Biases in risk perception, but not in volatility forecasts, affected portfolio decisions.
New Economics Papers: this item is included in nep-cfn, nep-exp and nep-fin
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Working Paper: Communicating asset risk: how the format of historic volatility information affects risk perception and investment decisions (2000)
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