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Article

Risk and Loss Aversion Revisited

Grégory Gadzinski and Gregory Moscato
The Journal of Investing Winter 2014, 23 (4) 99-110; DOI: https://doi.org/10.3905/joi.2014.23.4.099
Grégory Gadzinski
is a professor of finance at the International University of Monaco in the Principality of Monaco and member of the Group INSEEC Research Laboratory.
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  • For correspondence: ggadzinski@monaco.edu
Gregory Moscato
is a professor of finance and director of finance programs at the International University of Monaco in the Principality of Monaco and member of the Group INSEEC Research Laboratory.
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  • For correspondence: gmoscato@monaco.edu
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Abstract

We implement several financial and actuarial methods in order to assess investors’ risk and loss aversion. This article sheds another light on the risk characteristics of U.S. equity markets across different historical periods and their respective implied risk and loss aversion. First, we show that our selected risk measures depend upon market factors such as excess return and volatility. Consequently, for some historical periods, equity markets display implied risk aversion coefficients far below the ones found in previous literature. Furthermore, we investigate to what extent the proportion of risky assets held in one’s portfolio influences our risk measures. We find that the presence of risky assets, even in small proportion to one’s portfolio, still requires substantial tolerance to risk. As a result, we recommend that financial institutions should formalize the assessment of risk aversion quantitatively in order to match their offers with their clients’ individual characteristics.

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The Journal of Investing: 23 (4)
The Journal of Investing
Vol. 23, Issue 4
Winter 2014
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Risk and Loss Aversion Revisited
Grégory Gadzinski, Gregory Moscato
The Journal of Investing Nov 2014, 23 (4) 99-110; DOI: 10.3905/joi.2014.23.4.099

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Risk and Loss Aversion Revisited
Grégory Gadzinski, Gregory Moscato
The Journal of Investing Nov 2014, 23 (4) 99-110; DOI: 10.3905/joi.2014.23.4.099
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  • Article
    • Abstract
    • TWO TRANSFORMS: ESSCHER AND WANG
    • RISK MEASURES UNDER NORMALITY
    • RISK MEASURES USING EMPIRICAL DISTRIBUTIONS
    • EMPIRICAL APPLICATIONS
    • CONCLUDING REMARKS
    • APPENDIX A
    • APPENDIX B
    • APPENDIX C
    • ENDNOTES
    • REFERENCES
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