We investigate the effect of investor risk compensation (IRC) on stock market returns and the role of investor sentiment in influencing the link between IRC and stock returns. Results reveal that current IRC has a significant and positive effect on stock returns while past IRC has a negative effect. Meanwhile, the positive effect of current risk compensation on stock returns is sustainable with different current sentiment states, while this effect is not associated with the current magnitude of sentiment. Regarding past risk compensation, its negative impact on stock return also exists with different signs of past investor sentiment while this effect is not related to the value of past investor sentiment. We discuss the implications of the findings.

This paper investigates the interaction between crude oil prices and individual investor sentiment with the Hiemstra and Jones (HJ) test, the Diks and Panchenko (DP) test, the time-varying parameter structural vector autoregression (TVP-SVAR) model, and the nonlinear autoregressive distributed lags (NARDL) model. Results reveal a bidirectional nonlinear Granger causality, rather than a linear Granger causality, between crude oil prices and individual investor sentiment. Meanwhile, the interactions between the two variables are time-varying, and oil prices negatively affect individual investor sentiment in general. However, the effect of individual sentiment on oil prices is more complicated. It has more significant impacts on oil prices after 2000, and shows a positive influence before the global financial crisis, a minor influence during the crisis, and even a negative influence after the crisis. In addition, the oil price has significant long-run and short-run asymmetric effects on individual investor sentiment, whereas individual investor sentiment has no asymmetric effect on oil prices.

Taking the stock market as a whole object, we assume that prior losses and gains are two different factors that can influence risk preference separately. The two factors are introduced as separate explanatory variables into the time-varying GARCH-M (TVRA-GARCH-M) model. Then, we redefine prior losses and gains by selecting different reference point to study investors’ time-varying risk preference. The empirical evidence shows that investors’ risk preference is time varying and is influenced by previous outcomes; the stock market as a whole exhibits house money effect; that is, prior gains can decrease investors’ risk aversion while prior losses increase their risk aversion. Besides, different reference points selected by investors will cause different valuation of prior losses and gains, thus affecting investors’ risk preference.

This research examines whether intra-family leadership succession in Chinese family firms influences the decision to allocate more financial assets, the factors that influence second-generation successors in making such decisions, and their impacts on firm performance. The study collected firm and CEO data in which second-generation CEOs’ characteristics were captured, and the findings suggest second-generational involvement is a critical factor in the financialization of assets. Furthermore, the study finds that second-generation CEOs’ characteristics, market competition, and financing constraints have significant effects on second-generation successors when making asset-allocating decisions, and this is particularly true for financing constraints due to capital reserve motivations. The study finds no significant relationship between the financialization of assets in second-generation family firms and the family firms’ performance. This implies that firm innovation does not mean to neglect primary operating business. The results are robust after considering possible endogeneity issues and to various specifications of variables.

Perspective on behavioral finance, we take a new look at the characteristics of investors’ risk preference, building the D‐GARCH‐M model, DR‐GARCH‐M model, and GARCHC‐M model to investigate their changes with states of gain and loss and values of return together with other time‐varying characteristics of investors’ risk preference. Based on a full description of risk preference characteristic, we develop a GARCHCS‐M model to study its effect on the return skewness. The top ten market value stock composite indexes from Global Stock Exchange in 2012 are adopted to make the empirical analysis. The results show that investors are risk aversion when they gain and risk seeking when they lose, which effectively explains the inconsistent risk‐return relationship. Moreover, the degree of risk aversion rises with the increasing gain and that of risk seeking improves with the increasing losses. Meanwhile, we find that investors’ inherent risk preference in most countries displays risk seeking, and their current risk preference is influenced by last period’s risk preference and disturbances. At last, investors’ risk preferences affect the conditional skewness; specifically, their risk aversion makes return skewness reduce, while risk seeking makes the skewness increase.