Volatility Inadaptability: Investors Care About Risk, But Can't Cope with Volatility
Review of Finance (Forthcoming)
50 Pages
Posted: 13 Oct 2011
Last revised: 12 Jun 2013
University of Mannheim - Department of Banking and Finance
Goethe University Frankfurt
University of Mannheim - Department of Banking and Finance
Date Written: June 9, 2013
Abstract
This paper investigates two research questions: Do investors see a relationship between risk attitude and the amount invested risky? Further, do investors adjust their investments if provided with assets with different volatilities? In an experimental study, investors allocate an amount between a risky and a risk-free asset. Investors' risk attitude predicts risk taking. Investors are, however, unable to adapt to risky assets with different volatilities; they choose almost the same allocation to the risky asset independently of its volatility, thus amassing significantly different portfolios.
Keywords: portfolio choice, portfolio selection, risk-taking, volatility, volatility inadaptability
JEL Classification: G11
Suggested Citation:
Suggested Citation
Ehm, Christian and Laudenbach, Christine and Weber, Martin, Volatility Inadaptability: Investors Care About Risk, But Can't Cope with Volatility (June 9, 2013). Review of Finance (Forthcoming). Available at SSRN: https://ssrn.com/abstract=1942440 or http://dx.doi.org/10.2139/ssrn.1942440
