Investigation of variation between risk attitude and investment biases

Chen, C. & Handley-Schachler, M. (2016). Investigation of variation between risk attitude and investment biases. The International review of financial consumers, 1(1), pp. 57-80.

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Abstract

There is a palpable link between financial investment decision making and investors’ behaviour. Research into investors’ behaviour may prove useful in increasing our understanding of the extremely complex financial marketplace. In many cases, investors are unaware of their predisposition for error. And more often, an irrational investor is a dissatisfied investor, because biases usually undermine financial goals. By adopting an experimental approach, the researchers try to correlate established investor biases with the psychographic profiles of investors, to see whether specific risk personality profiles correlate with susceptibility to four biases: herding, endowment, loss aversion and framing.

Many studies have focused on exploring the demographics of investment behavioural flaws, but very little attention has been paid to the risk attitude of investors and their actual investment behaviour. The findings of this study bridge two aspects of literature, being attitude to financial risk and behavioural investment biases.

Item Type: Article
Uncontrolled Keywords: Behavioural finance, Risk tolerance score, investment biases, framing, loss aversion, herding, endowment
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Divisions: Cass Business School > Faculty of Management
URI: http://openaccess.city.ac.uk/id/eprint/17203

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