Empirical study on ordinal strategic risk and return with behavioral finance

From views of hominine bounded rationalities, this paper argues the relationship between ordinal strategic risk and return with behavioral finance. Focusing on a different interest, this paper adopts a new conceptualization of risk and shows how this conceptualization leads to a new measure of strategic risk, based upon mental accounts and ordinal approach. A behavioral finance model is presented, in which strategic reference and risk attitudes are endogenously determined and influence risk-return performance. With the model, this paper tests the Bowman's risk-return paradox. The selected sample consists of 18 companies listed on the SHSE 50 stock market index. Results indicate that risk-seeking companies can strategically achieve sustainable high returns at low risk. We discuss the implications of these findings for our understanding of strategic risk based on the behavioral finance theories.