Myopic loss aversion, a real world analysis
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One of the most relevant possible explanations to the equity premium puzzle is the theory of myopic loss aversion by Benartzi and Thaler (1995). Despite it’s relevance, the concept is only supported by experimental studies. In this study, the experimental design of Thaler et al. (1997) is used to measure loss aversion. This loss aversion measure is thereafter taken out of it’s experimental design and applied to real world data. In combination with evaluation frequency, which estimates the effect of myopia, the concept is used to predict asset holdings of Dutch households. The results of this study show that for the people that are evaluating their portfolio more often, loss aversion negatively impacts the amount invested in risky assets. This effect is stronger than the effect for those people who evaluate their portfolio less often, which suggests that myopic loss aversion is a viable explanation to the equity premium puzzle.
Faculteit der Managementwetenschappen