Bankers, Markets & Investors

How do anticipation and experience of regret affect financial decision-making? A lab experiment

Jean-Francois GAJEWSKI — 2021-04-22

Regret is a negative emotion experienced when people realize that a different choice would have led to a better payoff. People can anticipate regret before decisions, which prompts them to make a regret-minimizing decision. Regret affects people’s risk tendencies for financial decisions, though it is less understood how anticipated regret and the experience of regret might affect people’s risk and skewness choices. A lab experiment offers insights into the effect of regret on people’s risk and skewness decisions, with and without feedback. Regret aversion is important for explaining people’s choices when the attributes of lotteries are not too distinct. Moreover, people with greater regret aversion are more likely to choose a positively skewed lottery.

Dividend Policy and Managerial Overconfidence: French Evidence

SANA CHARBTI — 2021-04-22

This paper examines the impact of managerial overconfidence on dividend policy.
The literature has identified two strands of reasoning. Deshmukh et al. (2013) argue that overconfident managers with relatively high investment needs perceive external funds as more costly than internal financing. This leads them to pay out lower dividends. Conversely, Wu and Liu (2011) claim that overconfident CEOs expect higher future cash flows and are prone to pay out higher dividends. We study a sample of 120 French firms for the period 2000–2015. Our results provide evidence that CEOs’ overconfidence plays a decisive role in explaining the dividend policy of French firms. Managerial overconfidence exerts a positive effect on firms’ dividend payouts.

What do we learn about CEOs’ behaviour through neurofinance?

GUILLAUME BAECHLER — 2021-04-22

In financial literature, numerous papers aim to explain the behaviours or performances of entrepreneurs and CEOs. Since the emergence of neurosciences, researchers no longer have to to examine entrepreneurship through psychological traits or behavioural biases. Recent advances in neurofinance shed light on the core characteristics and decision-making processes of the entrepreneur’s brain. The purpose of this paper is to provide the reader with a review on the most prominent studies about CEOs and entrepreneurs on two particular aspects: the predisposition to choose entrepreneurship and the entrepreneur’s neural decision-making process.

Behavioral Finance

Marie PFIFFELMANN — 2021-04-22

Behavioral Finance

A note on portfolio choice and behavioral finance: Some food for thought

Marie PFIFFELMANN — 2021-04-22

In this note, we invite the reader to think about behavioral portfolio choice as a deviation from the standard Markowitz problem. The deviation has three origins; 1) the objective function to be maximized, 2) the probability measure under which prices and returns are characterized, and finally 3) the domain over which the optimization problem is solved. We then provide an illustration, from the Behavioral Portfolio Theory (BPT) of Shefrin and Statman (2000) to a set of relevant portfolio performance measures in a behavioral framework.