I wonder how risk-averse or risk-seeking investors behave in a stock market. Is there any bibliography that deals with that?

For example, suppose that we have a risk-averse investor that buys a stock of BuyMe Corp. at $10. It does that because the risk of this stock is low (low standard deviation/etc.) and he likes it. But what about the investor that sold this stock? Is he also risk-averse? How can we infer that?

Suppose this stock has variable volatility over-time. When it has low volatility it is more attractive to a risk-averse investor. Then, its volatility increases, so the risk-averse investor wants to sell it, and a less risk-averse investor (or a more risk-seeking one) buys it. Is my intuition correct?

But then, if the volatility of this stock increases by an increase in price, it will become less attractive to the risk-averse investor. Why should he sell? Is he stupid?

Last, how can we identify the risk attitude of the investors by observing the stock market?



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