Benchmarks in Aggregate Household Portfolios
AbstractReference–dependent preference models assume that agents derive utility from deviations of consumption from benchmark levels, rather than from consumption levels. These references can be either backward-looking (as explicit in the Habit literature) or forward-looking (as implicitly suggested by Prospect Theory). For both cases, we specify and estimate a fully structural multi-variate Brownian system in optimal consumption, portfolio and wealth using aggregate household financial and real estate wealth data. Our results reveal that references are (i) strongly relevant, (ii) state-dependent, and (iii) that the data is more consistent with the backwardthan the forward-looking reference model.
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Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 07-09.
Length: 55 pages
Date of creation: Dec 2006
Date of revision:
Portfolio choice; Reference–dependent utility; Habit; Prospect; Estimation of diffusion processes;
Other versions of this item:
- Pascal ST-AMOUR, 2007. "Benchmarks in Aggregate Household Portfolios," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 07.07, Université de Lausanne, Faculté des HEC, DEEP.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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- Koijen, R.S.J., 2008. "Essays on Asset Pricing," Open Access publications from Tilburg University urn:nbn:nl:ui:12-382981, Tilburg University.
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