How Negative Interest Rates Affect the Risk-Taking of Individual Investors: Experimental Evidence
13 Pages Posted: 6 Nov 2019
Date Written: July 2, 2019
Since the financial crisis of 2008, risk-free interest rates are at historical lows and even turned negative in some developed countries. We study experimentally how such changes in the interest rate regime affect the risk-taking of individual investors. Keeping the risk premium constant, we find that a reduction in the interest rate does not affect risk-taking in general. Risk-taking only increases significantly if the interest rate falls below zero. These findings are in line with value functions that are highly return sensitive around zero.
Keywords: Negative interest rates; Loss aversion; Portfolio theory; Financial decision making
JEL Classification: D81; E43; G11
Suggested Citation: Suggested Citation