Measuring Risk Preferences and Asset-Allocation Decisions: A Global Survey Analysis

58 Pages Posted: 6 Nov 2019

See all articles by Andrew W. Lo

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering; Santa Fe Institute

Alexander Remorov

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Zied Ben Chaouch

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering

Date Written: February 4, 2019

Abstract

We use a global survey of over 22,400 individual investors, 4,892 financial advisors, and 2,060 institutional investors between 2015 and 2017 to elicit their asset allocation behavior and risk preferences. We find substantially different behavior among these three groups of market participants. Most institutional investors exhibit highly contrarian reactions to past returns in their equity allocations. Financial advisors are also mostly contrarian; a few of them demonstrate passive behavior. However, individual investors tend to extrapolate past performance. We use a clustering algorithm to partition individuals into five distinct types: passive investors, risk avoiders, extrapolators, contrarians, and optimistic investors. Across demographic categories, older investors tend to be more passive and risk averse.

Keywords: Asset Allocation, Risk Aversion, Behavioral Finance, Retail Investors, Institutional Investors, Financial Advisors

JEL Classification: G02, G11, G23

Suggested Citation

Lo, Andrew W. and Remorov, Alexander and Ben Chaouch, Zied, Measuring Risk Preferences and Asset-Allocation Decisions: A Global Survey Analysis (February 4, 2019). Available at SSRN: https://ssrn.com/abstract=3328342 or http://dx.doi.org/10.2139/ssrn.3328342

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering ( email )

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HOME PAGE: http://web.mit.edu/alo/www

Santa Fe Institute

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Santa Fe, NM 87501
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Alexander Remorov

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

HOME PAGE: http://www.mit.edu/~alexrem/

Zied Ben Chaouch

Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering ( email )

100 Main Street, E62-618
Cambridge, MA 02142
United States

HOME PAGE: http://lfe.mit.edu/

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