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Skewness-seeking behavior and financial investments
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Skewness-seeking behavior and financial investments

Author

Listed:
  • Matteo Benuzzi

    (University of Trento)

  • Matteo Ploner

    (University of Trento)

Abstract

Recent theoretical and empirical advancements highlight the pivotal role played by higher-order moments, such as skewness, in shaping financial decision-making. Nevertheless, contemporary experimental research predominantly relies on limited-outcome lotteries, an oversimplified representation distant from real-world investment dynamics. To bridge this research gap, we conducted a rigorously pre-registered experiment. Our study delves into individuals’ preferences for investment opportunities, examining the influence of skewness of continuous probability distributions of returns. We document an inclination towards positively skewed outcome distributions. Furthermore, we uncovered a substitution effect between risk appetite and the sign of skewness. Finally, we unveiled a robust positive correlation between skewness-seeking behavior and a propensity for speculative behavior. Simultaneously, a distinct negative correlation surfaced between skewness-seeking behavior and the perceived risk associated with positive skewness.

Suggested Citation

  • Matteo Benuzzi & Matteo Ploner, 2024. "Skewness-seeking behavior and financial investments," Annals of Finance, Springer, vol. 20(1), pages 129-165, March.
    • Handle: RePEc:kap:annfin:v:20:y:2024:i:1:d:10.1007_s10436-023-00437-y
    DOI: 10.1007/s10436-023-00437-y
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    More about this item

    Keywords

    Skewness; Risk-taking; Stochastic dominance; Experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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