Scheckenbach, Isabel and Wimmer, Maximilian and Dorfleitner, Gregor (2021) The higher you fly, the harder you try not to fall: An analysis of the risk taking behavior in social trading. QUARTERLY REVIEW OF ECONOMICS AND FINANCE, 82. pp. 239-259. ISSN 1062-9769, 1878-4259
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In this article, we study the risk taking behavior under convex incentives in an innovative online trading setting. In particular, we empirically analyze how an infinite investment horizon and valuable outside options affect risk taking behavior. We find that traders choose the absolute and relative risk of the trading strategy depending on the proximity to the high-water mark (HWM), which represents a series of remuneration options on the assets under management. As a consequence, we observe more risk mitigating behavior the closer the HWM comes. Next, we show that the traders behave strategically and make their risk decisions based on their overall portfolio payoff. Finally, we find that social status indicators such as rankings and communication abilities significantly affect the risk taking behavior. (c) 2021 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | HIGH-WATER MARKS; HEDGE-FUND; MANAGERIAL INCENTIVES; CORPORATE GOVERNANCE; MUTUAL FUNDS; PERFORMANCE; COMPENSATION; TOURNAMENTS; MANAGEMENT; CONTRACTS; Risk taking; Convex incentives; Individual trading behavior; Social reward mechanisms; Social trading platforms |
| Subjects: | 300 Social sciences > 330 Economics |
| Divisions: | Business, Economics and Information Systems > Institut für Betriebswirtschaftslehre > Lehrstuhl für Finanzierung (Prof. Dr. Gregor Dorfleitner) |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 06 Jul 2022 07:59 |
| Last Modified: | 06 Jul 2022 07:59 |
| URI: | https://pred.uni-regensburg.de/id/eprint/45804 |
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