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Risk-Taking and Tail Events Across Trading Institutions

Abstract : We study the reaction of investors to tail events across trading institutions. We conduct experiments in which investors bid on a financial asset that delivers a small positive reward in more than 99% of the cases and a large loss otherwise. The baseline treatment uses a repeated BDM mechanism whereas the market treatment replaces the uniform draw of the BDM mechanism by a uniform draw over the bids of the other participants. Our design is such that bids should not differ across treatments in normal times while allowing for potential differences to emerge after tail events have occurred. We find that markets tend to exacerbate the reaction of investors to tail losses and we attribute this effect to emotions.
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Preprints, Working Papers, ...
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https://halshs.archives-ouvertes.fr/halshs-03357898
Contributor : Nelly Wirth Connect in order to contact the contributor
Submitted on : Wednesday, September 29, 2021 - 9:47:20 AM
Last modification on : Friday, November 5, 2021 - 9:44:04 AM

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  • HAL Id : halshs-03357898, version 1

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Brice Corgnet, Camille Cornand, Nobuyuki Hanaki. Risk-Taking and Tail Events Across Trading Institutions. 2021. ⟨halshs-03357898⟩

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