High Risk High Return? Empirical Testing of Prospect Theory in Indonesia

Rini Setyo Witiastuti, Kris Brantas Abiprayu, Ascariena Rafinda

2019

Abstract

The purpose of this research is to examine the prospect theory which show negative relation between risk and return as opposed to conventional view of “high risk high return” belief. We are testing the firm’s behaviour regarding their decision making under specific circumstances. We expect firm which underperform will show risk seeking behaviour and vice versa, which will prove the prospect theory. Using the data form 2005-2012, the samples in our research are all companies listed in Indonesian Stock Exchange. The result form our model shows robust and consistent evidence that support the prospect theory. We find that firm that perform under their competitor within industry (which shown by ROE/ROA lower than median industry) show a significant negative risk and return relation. We also find that within industry regression, the negative relation between risk and return still consistent with the base model. And lastly, in the annual regression, almost all period shows negative significant relation between risk and return. All of the result strongly support premise that argue most individuals are loss averse, then perform prospect theory behaviour.

Paper Citation

in Harvard Style

Witiastuti R., Abiprayu K. and Rafinda A. (2019). High Risk High Return? Empirical Testing of Prospect Theory in Indonesia. In Proceedings of the 2nd Economics and Business International Conference - Volume 1: EBIC, ISBN 978-989-758-498-5, pages 82-86. DOI: 10.5220/0009199300820086

in Bibtex Style

@conference{ebic19,
author={Rini Setyo Witiastuti and Kris Brantas Abiprayu and Ascariena Rafinda},
title={High Risk High Return? Empirical Testing of Prospect Theory in Indonesia},
booktitle={Proceedings of the 2nd Economics and Business International Conference - Volume 1: EBIC,},
year={2019},
pages={82-86},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0009199300820086},
isbn={978-989-758-498-5},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 2nd Economics and Business International Conference - Volume 1: EBIC,
TI - High Risk High Return? Empirical Testing of Prospect Theory in Indonesia
SN - 978-989-758-498-5
AU - Witiastuti R.
AU - Abiprayu K.
AU - Rafinda A.
PY - 2019
SP - 82
EP - 86
DO - 10.5220/0009199300820086