What Does it Take for a Specific Prospect Theory Type Household to Engage in Risky Investment?

This research note examines the conditions which will induce a prospect theory type investor, whose reference level is set by ‘playing it safe’, to invest in a risky asset. The conditions indicate that this type of investor requires a large equity premium to invest in risky assets. However, once she does invest because of a large risk premium, she becomes aggressive and buys/sells till an externally imposed upper/lower bound is reached.

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Year of publication:	2012-05
Authors:	Hlouskova, Jaroslava ; Tsigaris, Panagiotis
Institutions:	Department of Economics and Finance Research and Teaching, Institut für Höhere Studien (IHS)
Subject:	Prospect theory \| loss aversion \| reference level \| non-investment in risky assets

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Extent:	application/pdf
Series:	Economics Series.
Type of publication:	Book / Working Paper
Notes:	Number 286 10 pages
Classification:	D1 - Household Behavior and Family Economics ; D8 - Information and Uncertainty ; G1 - General Financial Markets
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010860382