Skewness Seeking in a Dynamic Portfolio Choice Experiment

38 Pages Posted: 27 Jan 2016

See all articles by Isabelle Brocas

Isabelle Brocas

University of Southern California - Department of Economics

Juan D. Carrillo

University of Southern California - Department of Economics; Centre for Economic Policy Research (CEPR)

Aleksandar Giga

University of Southern California

Fernando Zapatero

Questrom School of Business, Boston University

Date Written: January 2016

Abstract

We conduct a controlled laboratory experiment in which subjects dynamically choose to allocate their portfolio between (i) a safe asset, (ii) a risky asset and (iii) a skewed asset with negative expected value (a “bet”), in an environment where they can sometimes choose to acquire some information about the performance of their peers. We find three distinct groups of individuals: 16% of subjects never buy the bet, 29% of subjects learn not to buy the bet and 55% subjects persist purchasing the bet throughout the experiment. Among the latter group, purchases are most frequent when subjects are rich and when it is their last opportunity. Our subjects are also interested in the wealth of others, especially relative to theirs. Indeed, a subject with low, medium and high wealth has a preference for finding out what is the minimum, average and maximum wealth in the session, respectively. We also find that subjects buy more bets when they are richer and (unexpectedly) learn that their peers outperform them.

Keywords: laboratory experiment, portfolio allocation, relative performance, skewed asset

JEL Classification: C91, D03, D81, G11

Suggested Citation

Brocas, Isabelle and Carrillo, Juan D. and Giga, Aleksandar and Zapatero, Fernando, Skewness Seeking in a Dynamic Portfolio Choice Experiment (January 2016). CEPR Discussion Paper No. DP11056, 8th Miami Behavioral Finance Conference 2017, Available at SSRN: https://ssrn.com/abstract=2723317 or http://dx.doi.org/10.2139/ssrn.2723317

Isabelle Brocas (Contact Author)

University of Southern California - Department of Economics ( email )

3022 S. Vermont Ave
Los Angeles, CA 90089
United States
213-740-8842 (Phone)
213-740-8543 (Fax)

HOME PAGE: http://www-rcf.usc.edu/~brocas/

Juan D. Carrillo

University of Southern California - Department of Economics ( email )

3022 S. Vermont Ave.
Los Angeles, CA 90089
United States
213-740-3526 (Phone)
213-740-8543 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Aleksandar Giga

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Fernando Zapatero

Questrom School of Business, Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-3631 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
48
Abstract Views
786
PlumX Metrics