Does the prospect theory also hold for power traders? Empirical evidence from a Swiss energy company

Kalayci E., Basdas U.

Review of Financial Economics, vol.19, no.1, pp.38-45, 2010 (Scopus) identifier

  • Publication Type: Article / Article
  • Volume: 19 Issue: 1
  • Publication Date: 2010
  • Doi Number: 10.1016/j.rfe.2009.11.001
  • Journal Name: Review of Financial Economics
  • Journal Indexes: Scopus
  • Page Numbers: pp.38-45
  • Keywords: Financial crisis, House money effect, Loss aversion, Power traders, Prospect theory
  • Middle East Technical University Affiliated: Yes

Abstract

Currently, a great deal of empirical research has been done to test and verify Kahneman and Tversky's (1979) prospect theory. Nevertheless, the research only addresses private or institutional investors in the financial industry and has neglected specific tests in the real sector. In this paper, our goal is to examine whether the implications of prospect theory and the house money effect also hold for the power traders in the energy sector. The results show that the reflection and house money effects do not hold. Our results indicate the possible influence of the recent global crisis on prospect theory. © 2009 Elsevier Inc. All rights reserved.