The Effects of Emotions on Risk Aversion Behavior

Aren, Selim; Koten, Aysegul Berrak

doi:10.15637/jlecon.6.026

Cited by 5 publications

(6 citation statements)

References 38 publications

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“…2 The results show that the sentiment model subsumes a lower risk aversion coefficient (1 to 1.5) than the CC model. This is consistent with research showing that sentiment states affect risk aversion (Aren & Koten, 2019;Conte et al, 2016;Drichoutis & Nayga, 2013). Drichoutis and Nayga (2013) in their psychological research show that induced negative and positive mood states increase risk aversion in a laboratory experiment.…”

supporting

confidence: 91%

Sentiment or habits: Why not both?

Tham

2022

J of Financial Research

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Habits and sentiment are important psychological behaviors in asset pricing. In this article I nest consumer sentiment as a risk factor into the Campbell-Cochrane (CC) habit model and examine its impact on asset prices. The model provides an economic mechanism for the pricing of sentiment risk through its impact on habit sensitivity and equilibrium habit levels but finds its market price of risk much lower than fundamentals. The additional sentiment factor does not improve the CC model, with both models returning a matched moments error of 12% from 1980Q1 to 2021Q4.The sentiment factor, however, subsumes risk aversion with a lower resulting risk coefficient than the CC model without sentiment. Furthermore, the model shows that during the COVID period, the risk premium was driven more by consumption growth than sentiment.

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supporting

confidence: 91%

Sentiment or habits: Why not both?

Tham

2022

J of Financial Research

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“…The importance of emotions on financial decisions has been expressed by many researches (Aren and Köten, 2019). The instant effect that an internal or external stimulus creates on the person is called feel.…”

Section: Literature Review and Research Hypotheses 21 Personality Traitsmentioning

confidence: 99%

Moderation effect of pleasure seeking and loss aversion in the relationship between personality traits and risky investment intention

Aren

Hamamcı

Özcan

2021

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Purpose The aim of this study, the moderating effect of pleasure-seeking and loss aversion, was investigated in relation to the big five personality traits with regard to risky investment intentions. Design/methodology/approach In the study, the data was obtained between January and November 2019 via an online survey with convenience sampling. The total number of subjects is 886. The authors used IBM SPSS Statistics for analysis. Exploratory factor analysis, correlation analysis, regression analysis and discriminant analysis were performed. Findings Significant relationships were found between five personality traits and risky investment intentions. In these relationships, the moderator effect of pleasure-seeking for extraversion, conscientiousness and neuroticism personality traits was also determined. Besides, investment preferences for choosing “unknown and new investment” against “known and experienced investment”, which is a typical feature of the balloon periods, were modeled with big five personality traits and motivation variables (pleasure-seeking and loss aversion) and the equation was formed. As a result, high accuracy classification success was obtained. Originality/value The study is unique owing to its findings. In addition, general risk aversion and risky investment intention were investigated simultaneously to explain the different findings in the literature regarding the attitude of big five personality traits to risk and personality traits that show consistent approach were identified.

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“…(2) investors sometimes take unknown risks; and (3) they want social as well as subjective validation. While making an investment decision, investors are both affected by the emotions/moods they have at that moment and by the emotion created by the related financial instrument (Aren and K€ oten, 2019). If the investor is happy, s/he evaluates their investment optimistically.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Cognition is activated by the stimuli. It includes a mental activity in which a cause-effect relationship is established with the help of past information (Aren and K€ oten, 2019). Emotion is also a mental activity.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

The effect of individual cultural values and phantasy on risky investment intention

Aren

Hamamcı

2021

JEAS

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PurposeThis study aims to examine the impact of conscious and unconscious processes on risky investment intention. In this framework, the effect of individual cultural values and phantasy on risky investment intentions was investigated. In addition, the mediating role of phantasy in the relationship between individual cultural values and risky investment intentions was also analyzed.Design/methodology/approachData were collected between May 14, 2020 and June 01, 2020, when our graduate students voluntarily shared the online survey link on their social networks. In this way, 1,934 people in total answered the questionnaire. To test the study model, structural equation modeling (SEM) was performed using the AMOS program. In addition, ANOVA and independent sample t-test analyses were conducted using the SPSS program to analyze whether individual cultural values and risky investment intent differ according to demographic variables.FindingsAccording to the analysis results, power distance, collectivism, masculinity and long-term orientation are seen as antecedents of phantasy. While a positive relationship was found between power distance, collectivism and risky investment intention, a negative relationship was found between uncertainty avoidance and risky investment intention. Statistical findings regarding the mediating effect of phantasy on the relationship between individual cultural values and risky investment intentions were also determined. In addition to these, the differences in individual cultural values and risky investment intentions according to age, education level, sex and marital status were investigated. Individuals with the highest uncertainty avoidance level were in the 41–50 age group. Individuals with the highest long-term orientation level were individuals aged 41 and over. Individuals with the lowest risky investment intentions were in the +51 age group. Collectivism and power distance did not differ according to age. There were no differences in the relevant variables according to the level of education. Males have higher levels of risky investment intention, power distance, masculinity and collectivism than females, and married individuals have higher levels of uncertainty avoidance, masculinity and collectivism than singles.Originality/valueThis study is the first to investigate the impact of conscious and unconscious processes on risky investment intentions together. On the other hand, the number of studies empirically investigating the relationship between phantasy and risky investment intention is quite limited, and the authors have also provided the findings for the existence of a relationship between these two variables.

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The Effects of Emotions on Risk Aversion Behavior

Cited by 5 publications

References 38 publications

Sentiment or habits: Why not both?

Sentiment or habits: Why not both?

Moderation effect of pleasure seeking and loss aversion in the relationship between personality traits and risky investment intention

The effect of individual cultural values and phantasy on risky investment intention

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