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The Influence of Different Investment Horizons on Risk Behavior

Niklas Siebenmorgen () and Martin Weber
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Niklas Siebenmorgen: Graduiertenkolleg Finanz-/Gütermärkte, Postal: L 13, 15, D-68131 Mannheim

No 00-48, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: For a longer investment period investment consultants use to recommend a larger proportion of risky assets in investors' portfolios. In an experiment we examine the effect of different investment horizons on investors' risk behavior. We are interested both in the participants' risk perception behavior and in their asset allocation behavior. Furthermore, we examine framing effects regarding the presentation of historical one-year versus five-year returns to our participants. As before we find significant underestimations of long-term risks in all informational conditions that lead to a higher proportion of risky assets in the long-term portfolios. One explanation for this behavior is the belief in mean reversion, as our data show.

New Economics Papers: this item is included in nep-cfn, nep-exp and nep-fin
Date: 2000-10-18
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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