How negative interest rates affect the risk-taking of individual investors: Experimental evidence
Baars M, Cordes H, Mohrschladt H
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.
Negative interest rates; Loss aversion; Portfolio theory; Financial decision making