Experimental Design: Testing the Zero Yield Bias
Experimental Design: Testing the Zero Yield Bias

Author(s): Ilja Schaab, Eric Frère, Alexander Zureck
Subject(s): Business Economy / Management, Economic policy, Methodology and research technology
Published by: Masarykova univerzita nakladatelství
Keywords: Behavioral finance; portfolio theory; reaching for yield; unstable risk preferences; Zero Interest Rate environment;
Summary/Abstract: The various impacts of the European Central Bank’s monetary policy induce a necessity for new research approaches as the established theories provide only limited explanations to the new cause and effect relationships. First empirical studies on the topic of an investor’s risk stability in a low interest rate environment provided valuable insights for the portfolio theory and behavioral finance. According to the results, investors tend to allocate more funds into riskier assets when the interest rates are low. This paper proposes an experimental design which extends the differentiation between only a risk-free and a risky asset to a close-to-reality set-up. By presenting unlabeled asset classes with their key characteristics in different interest rate environments, the test subject gets the opportunity for a multidimensional assessment of the situation. The development of the six investment opportunities as well as their characteristics is explained in detail to provide transparency about the realistic set-up. The research based on this experimental design should provide deeper insights about the interrelation of the three dimensions of the triangle of finance and investing.

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