IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp0627.html
   My bibliography  Save this paper

Portfolio Choice with Loss Aversion, Asymmetric Risk-Taking Behavior and Segregation of Riskless Opportunities

Author

Listed:
  • Martin Vlcek

    (Institute for Empirical Research in Economics, University of Zurich)

Abstract

In this paper we present a two period model, where the agent's preferences are described by prospect theory as proposed by Kahneman and Tversky. We solve for the agent's portfolio decision. Our findings are that the changes in portfolio weights depend crucially on the reference point and the ratio between the reference point and the current wealth, and thus only indirectly on the performance of the risky asset. Our model explains why investor keep on holding, or even buy, loosing investments.

Suggested Citation

  • Martin Vlcek, 2005. "Portfolio Choice with Loss Aversion, Asymmetric Risk-Taking Behavior and Segregation of Riskless Opportunities," Swiss Finance Institute Research Paper Series 06-27, Swiss Finance Institute, revised Apr 2006.
    • Handle: RePEc:chf:rpseri:rp0627
    as

    Download full text from publisher

    File URL: http://ssrn.com/abstract=948644
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jose Luiz Barros Fernandes & Juan Ignacio Pena & Benjamin Miranda Tabak, 2010. "Behaviour finance and estimation risk in stochastic portfolio optimization," Applied Financial Economics, Taylor & Francis Journals, vol. 20(9), pages 719-738.

    More about this item

    Keywords

    Disposition e ect; house money e ect; prospect theory; portfolio choice;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp0627. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marilyn Barja). General contact details of provider: http://edirc.repec.org/data/chfeech.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.