Better the Devil You Know Than the Devil You Don't — Financial Crises between Ambiguity Aversion and Selective Perception

20 Pages Posted: 8 Jun 2017 Last revised: 23 Jan 2018

See all articles by Peter Scholz

Peter Scholz

Hamburg School of Business Administration

David Großmann

Andrassy University Budapest, Students; HSBA Hamburg School of Business Administration, Students

Sinan Krueckeberg

University of the German Federal Armed Forces - Helmut Schmidt Universität; HSBA Hamburg School of Business Administration

Date Written: January 22, 2018

Abstract

During financial crises, market participants are pressurized and presumably prone to emotional biased decisions. We use the Economic Policy Uncertainty Indicator and Dow Jones Industrial Average as well as Nikkei 225 GARCH volatilities to test for ambiguity aversion and selective perception of investors. For most crises, we find a significant link between uncertainty and market volatility. However, with respect to ambiguity aversion, the causality differs between crises indicating that investors may not always be driven by uncertainty. Regarding selective perception, we find significant results for the Dot.Com and subprime crises, but not for the Japanese asset price bubble and the Asian crisis.

Keywords: Ambiguity Aversion, Economic Policy, Financial Crisis, Financial Regulation, Monetary Policy, Selective Perception, Uncertainty

JEL Classification: G01, G02, G15, N22

Suggested Citation

Scholz, Peter and Großmann, David and Krueckeberg, Sinan, Better the Devil You Know Than the Devil You Don't — Financial Crises between Ambiguity Aversion and Selective Perception (January 22, 2018). Available at SSRN: https://ssrn.com/abstract=2981872 or http://dx.doi.org/10.2139/ssrn.2981872

Peter Scholz (Contact Author)

Hamburg School of Business Administration ( email )

Adolphsplatz 1
Hamburg, 20457
Germany

HOME PAGE: http://think-finance.de

David Großmann

Andrassy University Budapest, Students ( email )

Hungary

HSBA Hamburg School of Business Administration, Students ( email )

Germany

Sinan Krueckeberg

University of the German Federal Armed Forces - Helmut Schmidt Universität ( email )

Hamburg
Germany

HOME PAGE: http://www.krueckeberg.us

HSBA Hamburg School of Business Administration ( email )

Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
113
rank
229,727
Abstract Views
620
PlumX Metrics