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Benchmarks in Aggregate Household Portfolios


  • Pascal St-Amour

    (HEC University of Lausanne, HEC University of Montreal and Swiss Finance Institute)


Reference–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.

Suggested Citation

  • Pascal St-Amour, 2006. "Benchmarks in Aggregate Household Portfolios," Swiss Finance Institute Research Paper Series 07-09, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp0709

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    Cited by:

    1. Koijen, R.S.J., 2008. "Essays on asset pricing," Other publications TiSEM 75662994-29dc-4a83-a3ff-9, Tilburg University, School of Economics and Management.

    More about this item


    Portfolio choice; Reference–dependent utility; Habit; Prospect; Estimation of diffusion processes;

    JEL classification:

    • 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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