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How People Apply Mental Accounting Philosophy to Investment Risk?

Author

Listed:
  • Juan Mascare as

    (Complutense University of Madrid, Campus de Somosaguas, 28223-Pozuelo de Alarc n, Madrid, Spain,)

  • Fangyuan Yan

    (Twelve stars street, The National Camp, No. 4, 20842, Madrid., Spain.)

Abstract
In this article, the authors discuss the theme of mental accounting, which is the combination of psychology and finance. It suggests that the investment portfolio should be determined by the investors risk appetite and profitability preference. Not all investors want to take risks to obtain profits, and not all investors will give up their profits (or for sake their profits) because they are afraid of risks. Investors are different, AS they make decisions according to their own risk and return profiles. Unlike the traditional CAPM theory, we consider that risk and return portfolios have different levels in line with the investors' mental accounts of risk and profits to meet their investment expectations. Investors will carry out investment activities only when their psychological needs are met

Suggested Citation

  • Juan Mascare as & Fangyuan Yan, 2017. "How People Apply Mental Accounting Philosophy to Investment Risk?," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 145-151.
    • Handle: RePEc:eco:journ1:2017-03-20
    as

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    References listed on IDEAS

    as
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    3. Olivier Brandouy & Philippe Mathieu & Iryna Veryzhenko, 2012. "Risk Aversion Impact on Investment Strategy Performance: A Multi Agent-Based Analysis," Post-Print hal-00826144, HAL.
    4. Faten Ben Slimane & Mohamed Mehanaoui & Irfan Akbar Kazi, 2013. "How Does the Financial Crisis Affect Volatility Behavior and Transmission Among European Stock Markets?," IJFS, MDPI, vol. 1(3), pages 1-21, August.
    5. Tolga Cenesizoglu & Jonathan J. Reeves, 2013. "CAPM, Components of Beta and the Cross Section of Expected Returns," CIRANO Working Papers 2013s-09, CIRANO.
    6. Olivier Brandouy & Philippe Mathieu & Iryna Veryzhenko, 2012. "Risk Aversion Impact on Investment Strategy Performance: A Multi Agent-Based Analysis," Lecture Notes in Economics and Mathematical Systems, in: Andrea Teglio & Simone Alfarano & Eva Camacho-Cuena & Miguel Ginés-Vilar (ed.), Managing Market Complexity, edition 127, chapter 0, pages 91-102, Springer.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Mental Accounting; Investors Risk Appetite; Risk Coefficient (BETA) ; Return Investment Portfolio;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • F39 - International Economics - - International Finance - - - Other
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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