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Volatility shocks and investment behavior

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  • Huber, Christoph
  • Huber, Jürgen
  • Kirchler, Michael

Abstract

We investigate how volatility shocks affect investors risk-taking, risk perception and forecasts. We run artefactual field experiments with two participant pools (finance professionals and students), differing in (i) the direction of the shock (down, up, or a neutral case) and (ii) the presentation format of the time series (prices or returns). Professionals investments are negatively associated with the price change and performance of the stock and their perceived risk increases to a similar extent following shocks of all directions. Students risk perception, in contrast, is more closely related to the frequency of negative returns rather than an increase in volatility.

Suggested Citation

  • Huber, Christoph & Huber, Jürgen & Kirchler, Michael, 2022. "Volatility shocks and investment behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 56-70.
    • Handle: RePEc:eee:jeborg:v:194:y:2022:i:c:p:56-70
    DOI: 10.1016/j.jebo.2021.12.007
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    6. Lukas Menkhoff & Carsten Schröder, 2022. "Risky Asset Holdings During Covid‐19 and their Distributional Impact: Evidence from Germany," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(2), pages 497-517, June.

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    More about this item

    Keywords

    Risk taking; Risk perception; Experimental finance; Finance professionals; Volatility shocks;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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