Time varying risk aversion

Luigi Guiso, Paola Sapienza, Luigi Zingales*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

303 Scopus citations


Exploiting portfolio data and repeated surveys of an Italian bank's clients, we test whether investors’ risk aversion increases following the 2008 crisis. We find that, after the crisis, both qualitative and quantitative measures of risk aversion increase substantially and that affected individuals divest more stock. We investigate four explanations: changes in wealth, expected income, perceived probabilities, and emotion-based changes of the utility function. Our data are inconsistent with the first two channels, while they suggest that fear is a potential mechanism underlying financial decisions, whether by increasing the curvature of the utility function or the salience of negative outcomes.

Original languageEnglish (US)
Pages (from-to)403-421
Number of pages19
JournalJournal of Financial Economics
Issue number3
StatePublished - Jun 2018

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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