About Investor's Reference Point ans Satisfaction (An experimental investigation)

Abstract

This paper examines investors’ reference point and satisfaction. We demonstrate that investors’ reference point and satisfaction are heavily affected by stock and market returns. Using an experimental design, we analyze various combination of stock/market returns. Investors’ reference point is positively affected by stock and market return. In addition, the reference point adapts by larger magnitude following gain than following loss. Satisfaction is positively affected by stock return and negatively affected by market return. Additionally, the attributes of prospect theory (loss aversion and diminishing sensitivity) are investigated. Our results are very important to understand and to explain the risk behavior of investors.