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dc.creatorCuratola, Giuliano
dc.date.accessioned2021-09-28T09:26:42Z
dc.date.available2021-09-28T09:26:42Z
dc.date.issued2016-05-16
dc.identifier.urihttps://fif.hebis.de/xmlui/handle/123456789/2231
dc.description.abstractThis paper analyses the consumption-investment problem of a loss averse investor equipped with s-shaped utility over consumption relative to a time-varying reference level. Optimal consumption exceeds the reference level in good times and descend to the subsistence level in bad times. Accordingly, the optimal portfolio is dominated by a mean-variance component in good times and rebalanced more aggressively toward stocks in bad times. This consumption-investment strategy contrasts with customary portfolio theory and is consistent with several recent stylized facts about investors' behaviour. I also analyse the joint effect of loss aversion and persistence of the reference level on optimal choices. Finally, the strategy of the loss averse investor outperforms the conventional Merton-style strategies in bad times, but tend to be dominated by the conventional strategies in good times.
dc.rightsAttribution-ShareAlike 4.0 International
dc.rights.urihttp://creativecommons.org/licenses/by-sa/4.0/
dc.subjectFinancial Markets
dc.titleOptimal Consumption and Portfolio Choice with Loss Aversion
dc.typeWorking Paper
dc.source.filename130_SSRN-id2749498
dc.identifier.safeno130
dc.subject.keywordsloss-aversion
dc.subject.keywordshabit-formation
dc.subject.keywordsconsumption-portfolio choice
dc.subject.jelG11
dc.subject.jelG12
dc.subject.topic1analytically
dc.subject.topic1reflect
dc.subject.topic1kahneman
dc.subject.topic2depend
dc.subject.topic2literature
dc.subject.topic2investor
dc.subject.topic3maximize
dc.subject.topic3observe
dc.subject.topic3economy
dc.subject.topic1nameInvestor Behaviour
dc.subject.topic2nameMonetary Policy
dc.subject.topic3nameConsumption
dc.identifier.doi10.2139/ssrn.2749498


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