How negative interest rates affect the risk-taking of individual investors: Experimental evidence
Abstract
Since the financial crisis of 2008, risk-free interest rates are at historical lows and even turned negative in some developed countries. We study experimentally how such changes in the interest rate regime affect the risk-taking of individual investors. Keeping the risk premium constant, we find that a reduction in the interest rate does not affect risk-taking in general. Risk-taking only increases significantly if the interest rate falls below zero. These findings are in line with value functions that are highly return sensitive around zero.
Keywords
Negative interest rates; Loss aversion; Portfolio theory; Financial decision making
Cite as
Baars, M., Cordes, H., & Mohrschladt, H. (2020). How negative interest rates affect the risk-taking of individual investors: Experimental evidence. Finance Research Letters, 32, 101179.Details
Publication type
Research article (journal)
Peer reviewed
Yes
Publication status
Published
Year
2020
Journal
Finance Research Letters
Volume
32
Pages range
101179
Language
English
ISSN
1544-6123
DOI