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Asset return and wealth dynamics with reference dependent preferences and heterogeneous beliefs

  • Sergiy Gerasymchuk

    ()

    (Department of Applied Mathematics, University of Venice)

We study a model of a financial market populated with heterogenous agents whose preferences exhibit dependence on some reference level of wealth. Investment decisions of the agents are myopic and are based upon the demand for the risky asset derived from an S-shaped utility maximization. The specific demand form allows to model both heterogeneity of the system relative to the reference points of the agents and heterogeneity with respect to their beliefs about the future asset return. We analyze the impact of the former layer of heterogeneity on the asset return and wealth dynamics.

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File URL: http://virgo.unive.it/wpideas/storage/2008wp160.pdf
File Function: First version, 2008
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Paper provided by Department of Applied Mathematics, Università Ca' Foscari Venezia in its series Working Papers with number 160.

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Length: 18 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:vnm:wpaper:160
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  15. Sergiy Gerasymchuk, 2007. "Mean-Variance Portfolio Selection with Reference Dependent Preferences," Working Papers 150, Department of Applied Mathematics, Università Ca' Foscari Venezia.
  16. Shu-Heng Chen & Thomas Lux & Michele Marchesi, 1999. "Testing for Non-Linear Structure in an Artificial Financial Market," Discussion Paper Serie B 447, University of Bonn, Germany.
  17. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
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