Conference Paper

Empirical study on ordinal strategic risk and return with behavioral finance

Sch. of Manage., Northwestern Polytech. Univ., Xi'an, China;
DOI: 10.1109/ICSSSM.2005.1499428 In proceeding of: Services Systems and Services Management, 2005. Proceedings of ICSSSM '05. 2005 International Conference on, Volume: 1
Source: IEEE Xplore

ABSTRACT From views of hominine bounded rationalities, this paper argues the relationship between ordinal strategic risk and return with behavioral finance. Focusing on a different interest, this paper adopts a new conceptualization of risk and shows how this conceptualization leads to a new measure of strategic risk, based upon mental accounts and ordinal approach. A behavioral finance model is presented, in which strategic reference and risk attitudes are endogenously determined and influence risk-return performance. With the model, this paper tests the Bowman's risk-return paradox. The selected sample consists of 18 companies listed on the SHSE 50 stock market index. Results indicate that risk-seeking companies can strategically achieve sustainable high returns at low risk. We discuss the implications of these findings for our understanding of strategic risk based on the behavioral finance theories.

0 Bookmarks
 · 
40 Views
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Behavioral finance began as an attempt to understand why financial markets react inefficiently to public information. One stream of behavioral finance examines how psychological forces induce traders and managers to make suboptimal decisions, and how these decisions affect market behavior. Another stream examines how economic forces might keep rational traders from exploiting apparent opportunities for profit. Behavioral finance remains controversial, but will become more widely accepted if it can predict deviations from traditional financial models without relying on too many "ad hoc" assumptions.
    10/2006;
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We study equilibrium firm-level stock returns in two economies: one in which investors are loss averse over the fluctuations of their stock portfolio, and another in which they are loss averse over the fluctuations of individual stocks that they own. Both approaches can shed light on empirical phenomena, but we find the second approach to be more successful: In that economy, the typical individual stock return has a high mean and excess volatility, and there is a large value premium in the cross section which can, to some extent, be captured by a commonly used multifactor model.
    The Journal of Finance 07/2001; 56(4):1247 - 1292. · 4.22 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Two studies are reported where people are asked to accept or not a price reduction on a target product. In the high (low) relative saving version, the regular price of the target product is low (high). In both versions, the absolute value of the price reduction is the same as well as the total of regular prices of planned purchases. As first reported by Tversky and Kahneman (1981), findings show that the majority of people accept the price discount in the high-relative saving version whereas the minority do it in the low one. In Study 1, findings show that the previous preference reversal disappears when planned purchases are strongly related. Also, a previously unreported preference reversal is found. The majority of people accept the price discount when the products are weakly related whereas the minority accept when the products are strongly related. In Study 2, findings show that the classic preference reversal disappears as a function of the comparative price format. Also, another previously unreported preference reversal is found. When the offered price reduction relates to a low-priced product, people are more inclined to accept it with a control than a minimal comparative price format. Findings reported in Studies 1 and 2 are interpreted in terms of mental accounting shifts. Copyright © 2002 John Wiley & Sons, Ltd.
    Journal of Behavioral Decision Making 06/2002; 15(3):203 - 220. · 2.84 Impact Factor