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Wealth effects of time variation in investor risk preferences

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  • Bruce Niendorf
  • Thomas Ottaway

Abstract

We investigate the source of risk premiums: individual risk preferences. By examining the wealth characteristics of agents of different risk preferences, we study the financial incentive of investors to demonstrate different risk preferences. To accomplish this, we model the stock market utilizing artificial adaptive agents. If investors have incentive to vary their risk preferences, or if investors of a constant risk preference vary the way they participate in the market under different market conditions, this could lead to time variation in market risk premiums. We find that agents have significant incentive to demonstrate different risk preferences under different market conditions.(JEl G12) Copyright Springer 2002

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  • Bruce Niendorf & Thomas Ottaway, 2002. "Wealth effects of time variation in investor risk preferences," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 26(1), pages 77-87, March.
    • Handle: RePEc:spr:jecfin:v:26:y:2002:i:1:p:77-87
    DOI: 10.1007/BF02744453
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    References listed on IDEAS

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    1. Li, Yuming, 1998. "Time Variations in Risk Premia, Volatility, and Reward-to-Volatility," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(4), pages 431-446, Winter.
    2. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
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    7. repec:bla:jfinan:v:53:y:1998:i:2:p:575-603 is not listed on IDEAS
    8. John H. Cochrane & Lars Peter Hansen, 1992. "Asset Pricing Explorations for Macroeconomics," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 115-182, National Bureau of Economic Research, Inc.
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