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

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  • Sergiy Gerasymchuk

    () (Department of Applied Mathematics, University of Venice)

Abstract

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.

Suggested Citation

  • Sergiy Gerasymchuk, 2008. "Asset return and wealth dynamics with reference dependent preferences and heterogeneous beliefs," Working Papers 160, Department of Applied Mathematics, Università Ca' Foscari Venezia.
  • Handle: RePEc:vnm:wpaper:160
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    References listed on IDEAS

    as
    1. Valentyn Panchenko & Sergiy Gerasymchuk & Oleg V. Pavlov, 2007. "Asset price dynamics with small world interactions under hetereogeneous beliefs," Working Papers 149, Department of Applied Mathematics, Università Ca' Foscari Venezia.
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    Cited by:

    1. de Farias Neto, Joao Jose, 2008. "S-shaped utility, subprime crash and the black swan," MPRA Paper 12122, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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