This paper experimentally investigates how emotions are associated with option prices and risk perception. Using a binary lottery, we find evidence that the emotion 'surprise' plays a significant role in the negative correlation between lottery returns and estimates of the price of a put option....

Risk is one of the key aspects in financial decision-making and therefore an integral part of the behavioral economics and finance literature. Focusing on the conceptualization of the term "risk", which researchers have addressed from numerous angles, this comment aims to offer a critical...

We assess the ability of different risk profiling measures to predict risk taking along a multi-stage decision process. The latter involves decisions under ambiguity, decisions under risk, decisions after gaining experience and decisions after receiving outcome information on previous decisions....

We study three fundamental components of financial agency settings: Perception and communication of investment profiles, the interaction of agents’ and clients’ preferences, and the role of (non-)monetary incentives. The perception of investment profile terminology is very heterogeneous,...

We show in a simple framework that momentum trading can exist in equilibrium and momentum trading is profitable. Properties of the model fit the empirics well. First, the model captures in a parsimonious manner both short-term overreaction and long-term reversals. Second, it predicts that...

This paper studies optimal equity portfolios with long-term horizon under heterogeneous risk aversion levels. We focus on European stocks and empirically show that contemporaneous excess returns of semi-active strategies are negatively associated with market conditions and sentiment. Consistent...

This paper develops a tractable dynamic model of competition between two risk-averse portfolio managers who attempt to outperform each other by trading in different stocks, reflecting asset specialization. We characterize explicitly the unique Nash equilibrium portfolio policies, and show that a...

We employ two reward and risk measures, the Upper Partial Moment and the Lower Partial Moment, in order to maximize different value functions under the budget and the short-selling constraints. We find that agents seem to prefer small capitalization and high value stock portfolios (which are...

We consider an investor who faces parameter uncertainty in a continuous-time financial market. We model the investor's preference by a power utility function leading to constant relative risk aversion. We show that the loss in expected utility is large when using a simple plug-in strategy for...

I investigate a dynamic life-cycle strategic asset allocation and consumption problem under model uncertainty, where both inflation rate and income growth rate are assumed to be estimated with errors. I present a feasible boundary for the uncertainty aversion parameter, which measures the...