Dr. Kouwenberg's Latest International Journal Publication on Behavioral Finance

Asst. Prof. Dr. Roy Kouwenberg's research on behavioral finance with colleague Dr. Arjan Berkelaar of the World Bank in Washington D.C. has recently been accepted for publication in the Journal of Banking and Finance. The paper is titled “From Boom ‘til Bust: How Loss Aversion Affects Asset Prices”.  The theoretical work of Dr. Berkelaar and Dr. Kouwenberg may help us to better understand the remarkable path from boom ‘til bust of the world-wide stock markets from 1996 through 2008, which is very hard to explain with traditional economic models.  

Well-known research by Nobel laureate Daniel Kahneman and Amos Tversky has demonstrated that most people are loss averse when making decisions that involve risk, such as financial decisions. Loss aversion means that the pain of a potential loss looms much larger than the positive feeling associated with a gain. In their paper Dr. Berkelaar and Dr. Kouwenberg investigate how stock prices would be affected if many investors in the market are loss averse. The research shows that the presence of loss averse investors tends to increase stock market volatility greatly, leading to more drastic swings in prices, market booms and busts.