In:
American Economic Review, American Economic Association, Vol. 105, No. 2 ( 2015-02-01), p. 860-885
Abstract:
Countercyclical risk aversion can explain major puzzles such as the high volatility of asset prices. Evidence for its existence is, however, scarce because of the host of factors that simultaneously change during financial cycles. We circumvent these problems by priming financial professionals with either a boom or a bust scenario. Subjects primed with a financial bust were substantially more fearful and risk averse than those primed with a boom, suggesting that fear may play an important role in countercyclical risk aversion. The mechanism described here is relevant for theory and may explain self-reinforcing processes that amplify market dynamics. (JEL E32, E44, G01, G11, G12)
Type of Medium:
Online Resource
ISSN:
0002-8282
DOI:
10.1257/aer.20131314
Language:
English
Publisher:
American Economic Association
Publication Date:
2015
detail.hit.zdb_id:
203590-X
detail.hit.zdb_id:
2009979-4
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