Abstract

http://ssrn.com/abstract=2060983
 
 

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Sentiment, Risk Aversion, and Time Preference


Giovanni Barone-Adesi


Swiss Finance Institute at the University of Lugano; Ecole Polytechnique Fédérale de Lausanne - Swiss Finance Institute

Loriano Mancini


Ecole Polytechnique Fédérale de Lausanne; Ecole Polytechnique Fédérale de Lausanne - Swiss Finance Institute

Hersh Shefrin


Santa Clara University - Leavey School of Business

May 18, 2016

Swiss Finance Institute Research Paper No. 12-21

Abstract:     
We estimate aggregate preferences, beliefs, and sentiment from option prices and historical returns. Our market-based estimates correlate well with independent survey-based estimates, and yet provide a number of novel insights. Our analysis points out two significant issues related to overconfidence. First, the Baker--Wurgler index strongly reflects excessive optimism but not overconfidence. Second, optimism and overconfidence comove over time and generate a perceived negative risk-return relationship, while objectively the relationship is positive.


The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2295896

Number of Pages in PDF File: 44

Keywords: Sentiment, Pricing Kernel, Optimism, Overconfidence, Option Data

JEL Classification: G02, G12


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Date posted: May 18, 2012 ; Last revised: May 21, 2016

Suggested Citation

Barone-Adesi, Giovanni and Mancini, Loriano and Shefrin, Hersh, Sentiment, Risk Aversion, and Time Preference (May 18, 2016). Swiss Finance Institute Research Paper No. 12-21. Available at SSRN: http://ssrn.com/abstract=2060983 or http://dx.doi.org/10.2139/ssrn.2060983

Contact Information

Giovanni Barone-Adesi
Swiss Finance Institute at the University of Lugano ( email )
Via Buffi 13
CH-6904 Lugano
Switzerland
+41 58 666 4671 (Phone)
+41 58 666 46 47 (Fax)
Ecole Polytechnique Fédérale de Lausanne - Swiss Finance Institute
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Loriano Mancini
Ecole Polytechnique Fédérale de Lausanne ( email )
Quartier UNIL-Dorigny
Bâtiment Extranef
1015 Lausanne, CH-1015
Switzerland
HOME PAGE: http://sfi.epfl.ch/mancini.html
Ecole Polytechnique Fédérale de Lausanne - Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Hersh Shefrin (Contact Author)
Santa Clara University - Leavey School of Business ( email )
Dept. of Finance
Santa Clara, CA 95053
United States
408-554-6893 (Phone)
408-554-4029 (Fax)
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