How Do Investors Measure Risk?

9 Pages Posted: 3 Oct 2015

See all articles by Jonathan Berk

Jonathan Berk

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Date Written: October 1, 2015

Abstract

We infer which risk model investors use by looking at their capital allocation decisions. We find that investors adjust for risk using the beta of the Capital Asset Pricing Model (CAPM). Extensions to the CAPM perform poorly, implying that they do not help explain how investors measure risk.

Suggested Citation

Berk, Jonathan B. and van Binsbergen, Jules H., How Do Investors Measure Risk? (October 1, 2015). Available at SSRN: https://ssrn.com/abstract=2668303 or http://dx.doi.org/10.2139/ssrn.2668303

Jonathan B. Berk

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

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