How Negative Interest Rates Affect the Risk-Taking of Individual Investors: Experimental Evidence

13 Pages Posted: 6 Nov 2019

See all articles by Maren Baars

Maren Baars

University of Muenster - Finance Center

Henning Cordes

University of Muenster - Finance Center

Hannes Mohrschladt

University of Muenster - Finance Center

Date Written: July 2, 2019

Abstract

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

Baars, Maren and Cordes, Henning and Mohrschladt, Hannes, How Negative Interest Rates Affect the Risk-Taking of Individual Investors: Experimental Evidence (July 2, 2019). Finance Research Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3174583 or http://dx.doi.org/10.2139/ssrn.3174583

Maren Baars (Contact Author)

University of Muenster - Finance Center ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Henning Cordes

University of Muenster - Finance Center ( email )

Universitätsstr. 14-16
Muenster, 48143
Germany
+49 251 83 22058 (Phone)

Hannes Mohrschladt

University of Muenster - Finance Center ( email )

Universitätsstr. 14-16
Muenster, 48143
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/fcm/en/the-fcm/lsf/team/hannes-mohrschladt

Register to save articles to
your library

Register

Paper statistics

Downloads
249
Abstract Views
1,045
rank
126,900
PlumX Metrics