2. Motivation(MiFID, 2006/73)
3. Motivation
Reasons to know more about your customer 4. Elicitation of preferences regarding risk taking and risk profiles MotivationSOEP (2008) (Socio-Economic-Panel of the DIW) (approx. 22,000 individuals) 5. MotivationSOEP (2004) (Socio-Economic-Panel of the DIW) Elicitation of preferences regarding risk taking and risk profiles 6. MotivationSome German Bank (Private Wealth Management) Elicitation of preferences regarding risk taking and risk profiles 7. Modeling Risk Taking Risk Taking (Investing) = f ( Return, Risk) (see e.g Markowitz, JF, 1952) (see e.g Sarin/Weber, EJOR, 1993, Jia et al., MS, 1999 and E. Weber et al., 2004, JBDM) (Perceived Return) (Risk Attitude) (Risk Perception) (Investing) Risk Taking 8. Modeling Risk Taking
Analyze this link in a questionnaire study with 78 students (Nosic/Weber, How Risky Do I Invest: The Role of Risk Attitudes, Risk Perceptions and Overconfidence, 2008) 9. Design: Risk Taking (State certainty equivalent) Lottery 2 Risk taking Stocks (Divide 10,000 Euros between a lottery and a risk free assetrepeat for 5 different stocks) Risk taking (Divide 10,000 Euros between a lottery and a risk free asset) Lottery 1 Risk taking 10. Design: Risk Taking Lottery 2 Stocks Lottery 1 Mean = 58.75% (Median = 60%) 75% of all subjects in range: (40% - 100%)Mean = 4144.73 (Median = 4000) 83% of all subjects in range: (3000 - 5000)MeanAvg. stocks= 43.64%(MedianAvg. stocks= 40%) 75% of all subjects in range: (28% - 100%) 11. Design: Perceived Return Historical Return Past return of each stock Expected Return (Stock) State expected price for each stock(and transform this into return estimates) 12. Design: Risk Attitude 1 low willingness to take risk . 5 high willingness to take risk Subjective Risk Attitude Mean = 2.59 (Median = 2.5) 91% of all subjects in range: (2 - 4)Risk Attitude (Lottery 2) (elicit certainty equivalent and transform it into risk aversion parametersu(x) = x ) Mean = 0.86 (Median = 0.76) 83% of all subjects in range: (0.58 - 1) 13. Design: Perceived Risk Historical Volatility Past volatility of each stock Risk perception
Expected Volatility (Stock) State upper/lower bound for each stock(and transform this into volatility estimates) 14. Results: Correlation analyses First evidence for domain specificity Subjective risk attitude is better & more general predictor of risk taking behavior (Expected Return Historical Return) Expected Volatility Historical Volatility 15. Results: Disggregated regressions (clustered OLS) Domain specificity More overconfident take more risk Subjective risk attitude vs. lotteries Subjective vs. objective risk/return Risktaking (stocks) 16. ConclusionHistorical Return Expected Return Subjective Risk Attitude Risk Attitude Lottery 2
Risk Taking Perceived Return - . Perceived Risk Risk Attitude Historical Volatility Expected Volatility Risk Per-ception 17. Outlook
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