through which shocks may propagate is through the effect of past gains and losses on investors’ risk aversion. We test this … a simple model that analyzes the effect of heterogeneous changes in investors’ risk aversion on portfolio decisions and …

High-powered incentives may induce higher managerial effort, but they also expose managers to idiosyncratic risk. If … managers are risk averse, they might underinvest when firm-specific uncertainty increases, leading to suboptimal investment … decisions from the perspective of well-diversified shareholders. We empirically document that when idiosyncratic risk rises …

Investor aversion to risk varies over the course of the economic cycle. In the current recovery, the rebound in risk …-taking is near the top of the historical range. The pace of economic growth does not appear to explain the increase in risk … decline in the spread between risky and risk-free bonds. …

Loss aversion has been used to explain why a high equity premium might be consistent with plausible levels of risk … similarly to investors with high risk aversion. But if so, should these agents not perceive larger gains from international … diversification than standard expected-utility preference agents with plausible levels of risk aversion? They might not, because …