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Benchmarks in Aggregate Household Portfolios


  • Pascal ST-AMOUR


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 backward- than the forward-looking reference model.

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  • Pascal ST-AMOUR, 2007. "Benchmarks in Aggregate Household Portfolios," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 07.07, Université de Lausanne, Faculté des HEC, DEEP.
  • Handle: RePEc:lau:crdeep:07.07

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    References listed on IDEAS

    1. Navarro, Noemí & Perea, Andrés, 2001. "Bargaining in networks and the myerson value," UC3M Working papers. Economics we016121, Universidad Carlos III de Madrid. Departamento de Economía.
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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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