Yao, Rui (MU)https://hdl.handle.net/10355/627142024-03-28T21:28:14Z2024-03-28T21:28:14ZAn analysis of risk assessment questions based on loss-averse preferenceGuillemette, Michael A.Yao, RuiJames, Russell N., IIIhttps://hdl.handle.net/10355/627252022-12-14T16:42:34Z2015-01-01T00:00:00ZAn analysis of risk assessment questions based on loss-averse preference
Guillemette, Michael A.; Yao, Rui; James, Russell N., III
A variety of risk assessment questionnaires are used within the financial planning profession to assess client risk preferences. Evidence indicates that the average person overweighs losses relative to an arbitrary reference point. This paper evaluated risk assessment questions on how well they correlate with monetary loss aversion. Twenty-fine West Texas residents between the ages of 27 and 56 filled out several risk assessment questionnaires and two weeks later their coefficients of loss aversion were measured using monetary gain and loss scenarios. The individual risk assessment questions were placed into three categories: expected utility theory, prospect theory and self-assessment. Composite measures were created for within-group and between-group comparisons. Statistically significant correlations were found between monetary loss aversion and different composite measures. The results provide financial planners with a group of risk assessment questions that capture loss-averse preferences.
Postprint.
2015-01-01T00:00:00ZBehavior perspectives on making investment mistakesLei, ShanYao, Ruihttps://hdl.handle.net/10355/627172022-12-14T16:42:33Z2015-01-01T00:00:00ZBehavior perspectives on making investment mistakes
Lei, Shan; Yao, Rui
Abstract only. Abstract: Classic economics theory assumes individual are completely informed and rational when making decisions. However, in reality, decision makers go through both a rational and an emotional process in their brain. In some situations, emotional elements dominate the decision-making process (Ozmete & Hira, 2011; Tilson, 2005). Emotionally driven investment behaviors could lead to unnecessary realization of financial losses, which can impede investors' ability to accumulate wealth and jeopardize their financial goal achievement. Understanding factors that affect investors' decision-making is the first step into the solution to help investors overcome behavior biases and avoid investment mistakes. Using data from the 2008 FPA-Ameriprise Financial Value of Financial Planning Research Study, this study identifies the factors related to making investment mistakes. Investment mistakes in this study refers to moving assets into more of a cash position in a down market while having an adequate level of and reported an understanding of financial risks are more likely to make such investment mistakes. These findings have important implications for investors, their financial advisors and financial planning professionals in general.
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2015-01-01T00:00:00ZBuying high? : The house money effect on DC plan stock investmentYao, RuiLei, Shanhttps://hdl.handle.net/10355/627182022-12-14T16:42:33Z2016-01-01T00:00:00ZBuying high? : The house money effect on DC plan stock investment
Yao, Rui; Lei, Shan
Abstract only. As more and more employees are eligible for defined contribution (DC) plans as versus defined benefit (DB) plans, they have to shoulder the responsibility to manage their plan assets in order to achieve the desired consumption during retirement. With the well-known projections of the Social Security program and the longevity expectation of individuals, the retirement financial outlook for today's workforce is a concern. Portfolio allocation affects retirement wealth (Papke, 2004). When making portfolio allocation decisions, investors should focus on factors such as financial goals, risk and return of the portfolio, risk tolerance and investment horizon. "Buy low and sell high" is a simple concept. However, prior literature documented behaviors in ways contrary to this concept (Ciccone, 2011; Yao et al., 2013). Although several empirical studies have noted the effects of prior investment outcomes on investors' portfolio allocation decisions, very few studies focused on the influence of prior investment outcome on stock allocations in DC plans. Using the 2001-2013 Survey of Consumer Finances (SCF) datasets, this study fills in this research gap and examines how prior investment experience affects stock allocation in DC plans. Results show that compared with households with a prior loss and a non-positive economic expectation, those who had a prior gain were 1.9 times as likely to invest all DC plan assets in stocks. This confirmed the house money effect on stock investment in DC plans. This may help explain why some investors tend to "buy high" as opposed to following the simple "buy low and sell high" concept. Financial educators and financial fiduciaries should develop investment mechanisms and financial products to help investors avoid making investment mistakes and accumulate adequate retirement wealth.
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2016-01-01T00:00:00ZThe capital accumulation ratio as an indicator of retirement adequacyYao, RuiHanna, Sherman D.Montalto, Catherine P.https://hdl.handle.net/10355/627262022-12-14T16:42:34Z2003-01-01T00:00:00ZThe capital accumulation ratio as an indicator of retirement adequacy
Yao, Rui; Hanna, Sherman D.; Montalto, Catherine P.
The relationship between meeting the Capital Accumulation Ratio Guideline and retirement adequacy was investigated. About 63% of the households had a consistent relationship between meeting the 25% ratio guideline and being adequately prepared for retirement, with 46% of households both meeting the 25% ratio guideline and being prepared for retirement and 17% not meeting the guideline and not being adequately prepared for retirement. However, 37% of households did not have a consistent relationship. Meeting the 25% ratio guideline does not appear to be an accurate indicator of retirement adequacy. The 25% guideline was a better indicator than the 50% guideline.
2003-01-01T00:00:00Z