Applying Regret Theory to Investment Choices: Currency Hedging Decisions

S. Michenaud, B. SOLNIK

CFA Digest

février 2009, vol. 39, n°1, pp.55-56

Départements : Finance

The authors develop a model that has two components of risk: traditional risk (volatility) and regret risk. They apply the model to currency hedging to demonstrate behavior that would be counterintuitive when considering only traditional risk. The model is limited to relatively simple decision constructs because of the intricacy of applying regret theory and is distinctly different from other loss aversion behavioral models.