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Beliefs-dependent utilities do influence firm-specific wealth (executives’ inside equity holdings)

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  • Alsheikh, Muna Ibrahim

Abstract

This paper studies how beliefs-dependent risk aversion and information align with firm-specific wealth, “executives’ inside equity holdings.” It primarily uses the information risk premium (IRP), defined as the product of the volatility component, which is calculated by the information factor (e.g. consumption, dividends, and macroeconomic variables) and the market price of risk. The results conclude that IRP is 76 % inversely correlated with firm-specific wealth that explains how individuals govern their investment decisions based on beliefs beyond company and market investment analysis reports, explicitly, both during and after the 2007–2009 financial crisis. The results suggest that the financial market must recognize the importance of psychological forces in financial evaluations.

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  • Alsheikh, Muna Ibrahim, 2020. "Beliefs-dependent utilities do influence firm-specific wealth (executives’ inside equity holdings)," Journal of Economics and Business, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:jebusi:v:109:y:2020:i:c:s0148619519301377
    DOI: 10.1016/j.jeconbus.2020.105892
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    More about this item

    Keywords

    Beliefs-dependent utilities; Information risk premium (IRP); Executives’ inside equity holdings; Executives’ consumption; Consumption;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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