What is the effect of presenting prices vs returns on risk perception and risk assessment?
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2024-07-10
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nl
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This thesis focuses on the impact of presenting financial information as price graphs vs presenting it as return graphs and the impact of these different formats on individuals’ risk perception and assessment. A survey was conducted involving 220 participants where price and return graphs of historical financial assets were viewed across two different levels of volatility: high and low. Contrary to previous literature, the data revealed that investors perceive lower instead of higher risk when viewing return graphs as opposed to viewing price graphs. For low volatility stocks, return estimates were found to be more accurate to the actual price at the end of the year and less variable than direct price estimates. However, for the high volatility stock, there was no significant difference in accuracy between the different formats. Financial literacy was also found to not have a significant effect on the impact of the presentation format on perceived risk. This thesis has implications for financial advisors, policy makers and investment platforms to make use of its findings in the future, and improve the quality of life for investors within financial industries.
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Faculteit der Managementwetenschappen