Abstract

http://ssrn.com/abstract=911611
 
 

References (19)



 
 

Citations (14)



 


 



Reference Point Adaptation: Tests in the Domain of Security Trading


Hal R. Arkes


Ohio State University - Department of Psychology

David A. Hirshleifer


University of California, Irvine - Paul Merage School of Business

Danling Jiang


Florida State University - The College of Business

Sonya S. Lim


DePaul University - Department of Finance

January 1, 2008

Organizational Behavior and Human Decision Processes, Vol. 105, No. 1, pp. 67-81, January 2008

Abstract:     
According to prospect theory (Kahneman & Tversky, 1979), gains and losses are measured from a reference point. We attempted to ascertain to what extent the reference point shifts following gains or losses. In questionnaire studies we asked subjects what stock price today will generate the same utility as a previous change in a stock price. From participants' responses we calculated the magnitude of reference point adaptation, which was significantly greater following a gain than following a loss of equivalent size. We also found the asymmetric adaptation of gains and losses persisted when a stock was included within a portfolio rather than being considered individually. In studies using financial incentives within the Becker, DeGroot, and Marschak (1964) procedure, we again noted faster adaptation of the reference point to gains than losses. We related our findings to several aspects of asset pricing and investor behavior.

Number of Pages in PDF File: 32

Keywords: Prospect theory, Reference point, Asset pricing, Security trading

JEL Classification: C91, D81

Accepted Paper Series


Download This Paper

Date posted: June 28, 2006 ; Last revised: October 19, 2008

Suggested Citation

Arkes, Hal R. and Hirshleifer, David A. and Jiang, Danling and Lim, Sonya S., Reference Point Adaptation: Tests in the Domain of Security Trading (January 1, 2008). Organizational Behavior and Human Decision Processes, Vol. 105, No. 1, pp. 67-81, January 2008. Available at SSRN: http://ssrn.com/abstract=911611

Contact Information

Hal R. Arkes (Contact Author)
Ohio State University - Department of Psychology ( email )
240N Lazenby Hall
1885 Neil Avenue
Columbus, OH 43210
United States
614-292-1592 (Phone)
614-688-3984 (Fax)
David A. Hirshleifer
University of California, Irvine - Paul Merage School of Business ( email )
Irvine, CA California 92697-3125
United States
Danling Jiang
Florida State University - The College of Business ( email )
821 Academic Way
P.O. Box 3061110
Tallahassee, FL 32306-1110
United States
(850)645-1519 (Phone)
HOME PAGE: http://mailer.fsu.edu/~djiang/
Sonya S. Lim
DePaul University - Department of Finance ( email )
1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
HOME PAGE: http://sites.google.com/site/sonyalim/
Feedback to SSRN


Paper statistics
Abstract Views: 1,275
Downloads: 253
Download Rank: 68,665
References:  19
Citations:  14

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.203 seconds