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Applying Regret Theory to Investment Choices: Currency Hedging Decisions

Author

Listed:
  • Bruno Solnik

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Sébastien Michenaud

    (Jones Graduate School of Management - Rice University [Houston])

Abstract

The authors develop a model that has two components of risk: traditional risk (volatility) and regret risk. They apply the model to currency hedging to demonstrate behavior that would be counterintuitive when considering only traditional risk. The model is limited to relatively simple decision constructs because of the intricacy of applying regret theory and is distinctly different from other loss aversion behavioral models.

Suggested Citation

  • Bruno Solnik & Sébastien Michenaud, 2009. "Applying Regret Theory to Investment Choices: Currency Hedging Decisions," Post-Print hal-00491683, HAL.
    • Handle: RePEc:hal:journl:hal-00491683
    DOI: 10.2469/dig.v39.n1.23
    as

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    Cited by:

    1. Charilaos Mertzanis, 2013. "Risk Management Challenges after the Financial Crisis," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 42(3), pages 285-320, November.

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