Keith Jacks Gamble
Assistant Professor of Finance
DePaul University
1 East Jakson Blvd., Suite 6100
Chicago, IL 60604-2287
Tel: 312-362-7685
Fax: 312-362-6566
kgamble *AT* depaul.edu
|
"Presenting Investment Results Asset by Asset Lowers Risk Taking" (with Santosh Anagol) Management Science, revise and resubmit. We examine how the presentation of investment results affects risk taking using an experiment in which subjects are presented with their investment results either asset by asset or aggregated into one portfolio result. We estimate that presenting investment results segregated by asset lowers risk taking by 23%. Surprisingly, this effect is even larger among subjects with investing experience, providing additional support for the relevance of this result in the field. Subjects who view their investment results asset by asset invest more in the risk-free asset and as a result hold portfolios with lower expected return. We calibrate a model that allows investors to be sensitive to potential losses at the individual-asset level or only at the portfolio level. Our calibration results indicate that subjects who observe their investment results asset by asset are sensitive to potential losses at the individual-asset level. In contrast, subjects who observe their investment results aggregated show no sensitivity to losses at the individual-asset level. We conclude that presenting investment results asset by asset lowers risk taking by making loss averse investors sensitive to the results of individual assets in their portfolio. This combination of loss aversion and narrow framing in the cross section is distinct from myopic loss aversion. "How Prior Outcomes Affect Investors' Subsequent Risk Taking" (with Bjorn Johnson and Dasol Kim) We present empirical evidence of how prior outcomes affect individual investors' subsequent risk taking in their stock portfolio. Investors who experience big losses in the first six months of the year are more likely to decrease the risk in their stock portfolio over the final six months of the year. The bigger the initial loss, the more investors lower their subsequent risk taking. Investors who experience big gains in the first six months of the year are more likely to increase the risk in their stock portfolio over the final six months of the year. The bigger the initial gain, the more investors increase their subsequent risk taking. Updated August 2009 |