Craving for Financial Returns? Empirical Evidence from the Laboratory and the Field

96 Pages Posted: 1 Apr 2020

See all articles by Elise Payzan-LeNestour

Elise Payzan-LeNestour

University of New South Wales; Financial Research Network (FIRN)

James Doran

University of New South Wales

Date Written: March 15, 2020

Abstract

In a series of controlled laboratory experiments, we provide evidence for “Craving by Design” (CbD) theory, where people knowingly expose themselves to negative tail risk due to craving for monetary gains. We then document the “cheap call selling anomaly:” selling calls priced below 1Ams $ has consistently delivered negative long-term returns and negative skew, which is a puzzle when viewed from prevailing finance theories but a matter of course under CbD theory. These findings raise new questions about the motivations underlying investor decisions, the return properties of option markets, and the issue of problem gambling under repeated monetary gambles.

Keywords: Tail Risk, Self-Control, Craving, Gambling, Neurofinance

JEL Classification: C91, D83, D87, G02, G11

Suggested Citation

Payzan-LeNestour, Elise and Doran, James, Craving for Financial Returns? Empirical Evidence from the Laboratory and the Field (March 15, 2020). Available at SSRN: https://ssrn.com/abstract=3545804 or http://dx.doi.org/10.2139/ssrn.3545804

Elise Payzan-LeNestour (Contact Author)

University of New South Wales ( email )

Australian School of Business
Sydney, NSW 2052
Australia

HOME PAGE: http://www.elisepayzan.com/

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

James Doran

University of New South Wales ( email )

College Rd
Sydney, NSW 2052
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
6
Abstract Views
71
PlumX Metrics