Main content

Date created: | Last Updated:

: DOI | ARK

Creating DOI. Please wait...

Create DOI

Category: Project

Description: Risk is an integral part of many economic decisions, and is vitally important in finance. Despite extensive research on decision-making under risk, little is known about how risks are actually perceived by financial professionals, the key players in global financial markets. In a large-scale survey experiment with 2,213 finance professionals and 4,559 lay people in nine countries representing $\sim$50\% of the world's population and more than 60\% of the world's gross domestic product, we expose participants to return distributions with equal expected return and we systematically vary the distributions' next three higher moments. Of these, skewness is the only moment that systematically affects financial professionals' perception of financial risk. Strikingly, variance does not influence risk perception, even though return volatility is the most common risk measure in finance in both academia and the industry. When testing other, compound risk measures, the probability to experience losses is the strongest predictor of what is perceived as being risky. Analyzing professionals' propensity to invest, skewness and loss probability also have strong predictive power, while volatility and kurtosis have some additional effect. Our results are very similar for lay people, and they are robust across and within countries with different cultural backgrounds as well as for different job fields of professionals.

Wiki

Add important information, links, or images here to describe your project.

Files

Loading files...

Citation

Components

Data

raw and processed data from the experiment

Recent Activity

Loading logs...

Scripts

analysis scripts and source code of figures

Recent Activity

Loading logs...

Figures

figures as included in the paper and the appendix

Recent Activity

Loading logs...

PostPrint

post print version of the paper

Recent Activity

Loading logs...

Tags

Recent Activity

Loading logs...