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 …

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 …

past gains and losses on investors’ risk aversion. The paper first presents a simple model examining how heterogeneous … changes in investors’ risk aversion affects portfolio decisions and stock prices. Second, the paper shows empirically that …

Within the past two years, important advances have been made in modeling credit risk at the portfolio level … especially influential benchmarks for credit risk models, J.P. Morgan's CreditMetrics and Credit Suisse Financial Product …

There is evidence that risk-taking behavior is influenced by prior monetary gains and losses. When endowed with house … money, people become more risk taking. This paper is the first to report a house money effect in a dynamic, financial …

past gains and losses on investors’ risk aversion. The paper first presents a simple model examining how heterogeneous … changes in investors’ risk aversion affects portfolio decisions and stock prices. Second, the paper shows empirically that …

According to disposition effect theory, people hold losing investments too long. However, many investors eventually …