We extend the original form of Prospect Theory by Kahneman and Tversky from finite lotteries to arbitrary probability distributions, thus paving the way for applications in economics and finance. Moreover, we suggest a method how to incorporate a crucial step of the quot;editing phasequot; into...

Motivated by Bali, Cakici and Whitelaw (2011)'s findings of the “MAX effect” in the U.S. stock markets, where stocks with high maximum daily returns in the previous month have abnormally low average returns, we check their result's robustness on two different periods, which was not conducted...

Cultural differences in thought processes (i.e., holistic versus analytic thinking) have been suggested as an explanation for different susceptibility to framing effects. To test this, we conducted an experiment which investigates several framing problems and various measures of cognitive modes...

Stock market participation differs a lot across countries. Cultural dimensions could be a potential factor for that. We show that indeed uncertainty avoidance is linked to rates of stock market participation across countries. We can show even more that uncertainty avoidance has an indirect...

We examine time discounting factors in an international survey. Our analysis reveals a significant relationship between time discount factors and historical equity premiums across 27 countries. This result implies that higher historical equity risk premiums are observed in countries where survey...

We elicit time discounting factors in an international survey. Our analysis reveals a significant relationship between time discount factors and historical equity premium across 27 countries. It implies that in countries where participants tend to be more short-term oriented, higher historical...

We present results from the first large-scale international survey on risk preferences, conducted in 45 countries. We show substantial cross-country differences in risk aversion, loss aversion and probability weighting. Moreover, risk attitudes in our sample depend not only on economic...

Previous literature on cash management has revealed that firms hoard cash to protect themselves against external financing constraints that might limit future capital budgeting policies. In a theoretical model based on this finding, we analyze how investors' attitude towards uncertain investment...

Recent studies show that loss probability (LP) is a decisive factor when people evaluate risk of assets in laboratory experiments, suggesting a positive relationship between LP and expected stock returns. This corresponds to the classical "Safety-First" principle. We find empirical support for...

Structured investment products, also known as equity- or index-linked notes, have become immensely popular among retail investors in the last ten years. In this paper, however, we show that for classical rational investors the utility gains from structured products are typically much smaller...