Empirical study on ordinal strategic risk and return with behavioral finance

Conference Paper · July 2005
DOI: 10.1109/ICSSSM.2005.1499428 · Source: IEEE Xplore
Conference: Services Systems and Services Management, 2005. Proceedings of ICSSSM '05. 2005 International Conference on, Volume: 1

    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.