In this paper we investigate how volatility shocks influence investors' perceptions about a stock's risk, its future … development, and investors' investment propensity. We ran artefactual field experiments with two participant pools (finance … professionals and students) that had to take investment decisions, differing in (i) the direction of the shock (down, up, straight …

and regime-dependent preferences. Variations in risk attitudes have fundamental effects on the structure of equilibrium …. Explicit solutions are provided for the market price of risk, the interest rate, stock and bond prices, and asset return … of risk, the interest rate, the stock market volatility, the equity premium and the moments of the consumption growth …

In this paper, dynamic option-based investment strategies are derived and illustrated for investors exhibiting downside …