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In this study, we investigate what drives the MAX effect in the South Korean stock market. We find that the MAX effect is significant only for overpriced stocks categorized by the composite mispricing index. Our results suggest that investors' demand for the lottery and the arbitrage risk effect of MAX may overlap and negate each other. Furthermore, MAX itself has independent information apart from idiosyncratic volatility (IVOL), which assures that the high positive correlation between IVOL and MAX does not directly cause our empirical findings. Finally, by analyzing the direct trading behavior of investors, our results suggest that investors' buying pressure for lottery-like stocks is concentrated among overpriced stocks.

In this paper, we show that there is a negative premium for MAX stocks in the Korean stock market. However, there is no evidence that the MAX effect overwhelms the effects of idiosyncratic risk. When we control for idiosyncratic risk, the negative relationship between extreme returns and future returns is less robust. Rather, the cross-effect of the extreme returns and the idiosyncratic risk factors explains the negative premium. Furthermore, our results are not fully explained by the exposure to the market timing and economic state. Overall, both the extreme return and idiosyncratic risk effects appear to coexist in the Korean stock market, but they are not independently.

It has been demonstrated in the US market that expected market excess returns can be predicted using the average higher-order moments of all firms. This study aims to empirically test this theory in emerging markets.

Two measures of average higher moments have been used (equal-weighted and value-weighted) along with the market moments to predict subsequent aggregate excess returns using the linear as well as the quantile regression model.

The authors report that both equal-weighted skewness and kurtosis significantly predict subsequent market returns in two countries, while value-weighted average skewness and kurtosis are significant in predicting returns in four out of nine sample markets. The results for quantile regression show that the relationship between the risk variable and aggregate returns varies along the spectrum of conditional quantiles.

This is the first study that investigates the impact of third and fourth higher-order average realized moments on the predictability of subsequent aggregate excess returns in the MSCI Asian emerging stock markets. This study is also the first to analyze the sensitivity of future market returns over various quantiles.

This study aims to examine what underlies the estimated relation between idiosyncratic volatility and realized return.

Idiosyncratic volatility has a dual effect on stock pricing: it not only affects investors' expected return but also affects the efficiency of stock price in reflecting its value. Therefore, the estimated relation between idiosyncratic volatility and realized return captures its relations with both expected return and the mispricing-related component due to its dual effect on stock pricing. The sign of its relation with the mispricing-related component is indeterminate.

The estimated relation between idiosyncratic volatility and realized return decreases and switches from positive to negative as the estimation sample consists of proportionately more ex ante overvalued observations; it increases and switches from negative to positive as the estimation sample consists of proportionately more ex post overvalued observations. In sum, the relation of idiosyncratic volatility with the mispricing-related component dominates its relation with expected return in its estimated relation with realized return. Moreover, its estimated relation with realized return varies with research design choices and even switches sign due to their effects on its relation with the mispricing-related component.

The novelty of the study is evident in the implication of its findings that one cannot infer the sign of the relation of idiosyncratic volatility with expected return from its estimated relation with realized return.

This paper aims to investigate short selling and stock price crash risk. The authors find that short selling is positively associated with one-month-ahead stock price crash risk, consistent with the literature showing that short sellers are informed traders. The authors attribute this prediction ability to the information short sellers receive from foreign investors with high levels of ownership in a firm. The results shed light on policy issues regarding short selling regulation.

This study aims to examine the effects of prior small-scale changes to wealth on subsequent risky choices.

The paper opted for a laboratory experiment in which subjects perform two sequences of risky tasks. In between these two sets, the author transfers money for real for a randomly selected half of the subjects. Data on choices before and after the transfer of money are used to estimate risk attitudes and analyze whether the transfer of money affected attitudes to risk.

The author finds that the money gain does not change subjects' risk preferences – neither in a within- nor in a between-subject design. This suggests that individuals' risky choices are consistent with their constant absolute (CARA) risk aversion preferences, a result that supports a key assumption in recent literature on the calibration critique of decision theories and the view that individuals engage in narrow framing.

Because of the relatively small transfer of money, the research results may lack generalizability.

The paper includes implications for the reference-dependent and other theories that explain how prior outcomes affect risk-taking behavior in sequential problems.

The results are relevant to the research community studying risk-taking behavior as the results shed new light on a well-known result put forward by a seminal paper by Thaler.

This paper fills in an identified gap in the literature which is the need to test the house-money effect in a more realistic setting (over repeated risk-elicitation tasks, with money given outside the lotteries and in a within-subject design).

Expanding on the real-world financial market framework and considering the current market turmoil, with cryptocurrencies (where contracts for difference (CFDs) are extremely common) (Hasso et al., 2019) displaying unprecedented volatility, the authors aim to test in an online laboratory setting whether displaying a risk warning message is truly effective in reducing the level of risk taken and whether the placement of this method makes a difference.

To explore the impact of risk disclosure framing on risk-taking behavior, the authors conducted an online pair-wise lottery choice experiment. In addition to manipulating risk awareness through the presence or absence of risk warning messages of varying intensity, the authors also considered dynamic inconsistency, cognitive ability and questionnaire-based financial risk tolerance (FRT) scores. The authors aimed to identify potential relationships between these variables and experimentally elicited risk aversion. The authors' study offers valuable insights into the complex nature of risky decision-making and sheds light on the importance of considering dynamic inconsistency in addition to risk awareness and aversion.

The authors' results provide statistical evidence for the efficacy of informative and very salient messages in mitigating risky decision, hinting at several policy implications. The authors also provide some statistical evidence in support of the relationship between cognitive abilities and risk preferences. The authors detect that individual with low cognitive abilities scores display great risk aversion.

This study investigates the impact of risk warning messages on investment decisions in an online laboratory setting – a unique approach. However, the authors go beyond this and also examine the potential influence of dynamic inconsistency on decision-making, adding further value to the literature on this topic. To ensure a comprehensive understanding of the participants, the authors collect data on cognitive ability and FRT using questionnaires. This study provides a simple and cost-effective framework that can be easily replicated in future research – a valuable contribution to the field.

We propose a risk factor for idiosyncratic entropy and explore the relationship between this factor and expected stock returns.

We estimate a cross-sectional model of expected entropy that uses several common risk factors to predict idiosyncratic entropy.

We find a negative relationship between expected idiosyncratic entropy and returns. Specifically, the Carhart alpha of a low expected entropy portfolio exceeds the alpha of a high expected entropy portfolio by −2.37% per month. We also find a negative and significant price of expected idiosyncratic entropy risk using the Fama-MacBeth cross-sectional regressions. Interestingly, expected entropy helps us explain the idiosyncratic volatility puzzle that stocks with high idiosyncratic volatility earn low expected returns.

We propose a risk factor of idiosyncratic entropy and explore the relationship between this factor and expected stock returns. Interestingly, expected entropy helps us explain the idiosyncratic volatility puzzle that stocks with high idiosyncratic volatility earn low expected returns.

This paper aims at investigating the contemporary trend toward regional consumption from the perspective of consumers’ search for brand authenticity. In particular, the paper joins literature on brand authenticity from the marketing literature and literature on the local food movement to investigate consumers’ response to authenticity claims in the competition of local and global food brands.

The paper engages in a series of three experimental studies; one of which uses a Becker–DeGroot–Marschak lottery to assess individuals’ willingness to pay for authenticity claims of (non)global brands.

Findings show that authenticity perceptions lead to higher brand value independent of brand globalness; while global brands can mitigate competitive disadvantages in localized consumer markets by actively authenticating their brand image.

This paper reveals the usefulness of authentic brand positioning for global beverage brands when competing with local beverage brands to overcome the liability of globalness. To sustainably benefit from the local food movement, local brands thus will require to build up brand images beyond associations of mere authenticity.

The authors believe that comparing individuals to groups' decision making is crucial provided that many important choices in society are made by groups, i.e. committees, governing bodies, juries, business partners and families. This study aims to discuss the aforementioned topic.

The authors analyze risky decision making in the context of the television game show Deal or No Deal – Italian edition. Specifically, the authors scrutinize and compare individual (standard “Deal or No Deal” edition) and group (special edition) choices in the risky choice context provided by programe.

After analyzing contestant's behavior in the standard edition episodes plus a special edition the authors calculate a risk index observing that no statically significant difference is present between individuals' and groups' actions.

In the “Deal or No Deal” special edition contestant were groups of two strangers. It is not uncommon to have couples playing on TV, however the individuals usually know each other well and have relationships in real life. The special edition therefore provides a unique setting (absent to best of the authors’ knowledge in the literature) for investigation and could offer real-world insight. Indeed, in many instances the authors have to contract/make decisions with people the authors do not know/know very little (i.e. occasional business partners, representative at other companies/institutions, insurance/finance advisors, new work colleagues, etc.).