Topic
Financial risk
About: Financial risk is a research topic. Over the lifetime, 11899 publications have been published within this topic receiving 231404 citations. The topic is also known as: economic risk.
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TL;DR: This paper found that women invest less and appear to be more financially risk averse than men, while men are more willing to take financial risks than women, and that women are more likely to buy stocks than men.
Abstract: Are men more willing to take financial risks than women? The answer to this question has immediate relevance for many economic issues. We assemble the data from 15 sets of experiments with one simple underlying investment game. Most of these experiments were not designed to investigate gender differences and were conducted by different researchers in different countries, with different instructions, durations, payments, subject pools, etc. The fact that all data come from the same basic investment game allows us to test the robustness of the findings. We find a very consistent result that women invest less, and thus appear to be more financially risk averse than men.
1,180 citations
TL;DR: Fama and Jensen as discussed by the authors argued that the individual owner has little interest in conducting, or even closely monitoring, the day-to-day activities in all of the firms in which he or she has a financial interest.
Abstract: Managers of contemporary publicly held organisations typically are not the owners. Rather, a specialisation of responsibilities has evolved whereby managers coordinate activities within the firm and position it appropriately in its competitive environment; the owners of the firm bear financial risk in the hope of retaining the difference between the firm’s productive cash-flows and the outflows of its promised payments (Fama and Jensen 1983a, 1983b). As the firm’s owners would suffer tremendous financial losses if the firm failed, they tend to diversify their holdings across a variety of firms as a hedge against such a possibility. As a result, the individual owner has little interest in conducting, or even closely monitoring, the day-to-day activities in all of the firms in which he or she has a financial interest (Fama 1980). The owners hire boards of directors who, in turn, hire managers to perform these duties.
1,169 citations
TL;DR: This paper studied a macroeconomic model in which financial experts borrow from less productive agents and found that the economy is prone to instability and occasionally enters volatile episodes, and that risk sharing within the financial sector reduces many inefficiencies, it can also amlify systemic risks.
Abstract: This paper studies a macroeconomic model in which financial experts borrow from less productive agents. We pursue four sets of results: (i) The economy is prone to instability and occasionally enters volatile episodes. As volatility spikes agents precautionary motive increases depressing prices even further. Log-linear approximations fail to capture these non-linear effects that can cause economies to be significantly depressed for long periods of time. (ii) Endogenous risk during volatile episodes increases asset price correlations. (iii) Financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion, and funding structure. (iv) While risk sharing within the financial sector (through securitization and derivatives contracts) reduces many inefficiencies, it can also amlify systemic risks.
1,107 citations
TL;DR: This paper showed that firm performance and business risk are much stronger predictors of the chief executiv... of Spanish newspapers over a period of 27 years (1966-93) and showed that firms' performance and risk are correlated with chief executability.
Abstract: Drawing on data based on the entire population of Spanish newspapers over 27 years (1966-93), this study shows that firm performance and business risk are much stronger predictors of chief executiv...
1,087 citations
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TL;DR: It is suggested that distinct neural circuits linked to anticipatory affect promote different types of financial choices and indicate that excessive activation of these circuits may lead to investing mistakes.
Abstract: Investors systematically deviate from rationality when making financial decisions, yet the mechanisms responsible for these deviations have not been identified. Using event-related fMRI, we examined whether anticipatory neural activity would predict optimal and suboptimal choices in a financial decision-making task. We characterized two types of deviations from the optimal investment strategy of a rational risk- neutral agent as risk-seeking mistakes and risk-aversion mistakes. Nucleus accumbens activation preceded risky choices as well as risk- seeking mistakes, while anterior insula activation preceded riskless choices as well as risk-aversion mistakes. These findings suggest that distinct neural circuits linked to anticipatory affect promote different types of financial choices, and indicate that excessive activation of these circuits may lead to investing mistakes. Thus, consideration of anticipatory neural mechanisms may add predictive power to the rational actor model of economic decision-making.
980 citations