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Behavioral Portfolio Choice Under Hyperbolic Absolute Risk Aversion
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Book Synopsis Behavioral Portfolio Choice Under Hyperbolic Absolute Risk Aversion by : Marcos Escobar
Download or read book Behavioral Portfolio Choice Under Hyperbolic Absolute Risk Aversion written by Marcos Escobar and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the optimal investment problem for a behavioral investor with probability distortion functions and an S-shaped utility function whose utility on gains satisfies the Inada condition at infinity, albeit not necessarily at zero, in a complete continuous-time financial market model. In particular, a piecewise utility function with hyperbolic absolute risk aversion (HARA) is applied. The considered behavioral framework, Cumulative Prospect Theory (CPT), was originally introduced by Tversky and Kahneman (1992). The utility model allows for increasing, constant or decreasing relative risk aversion. The continuous-time portfolio selection problem under the S-shaped HARA utility function in combination with probability distortion functions on gains and losses is solved theoretically for the first time, the optimal terminal wealth and its replicating wealth process and investment strategy are stated. In addition, conditions on the utility and the probability distortion functions for well-posedness and closed-form solutions are provided. A specific probability distortion function family is presented which fulfills all those requirements. This generalizes the work by Jin and Zhou (2008). Finally, a numerical case study is carried out to illustrate the impact of the utility function and the probability distortion functions.
Book Synopsis Risk Aversion and Portfolio Choice by : Donald D. Hester
Download or read book Risk Aversion and Portfolio Choice written by Donald D. Hester and published by . This book was released on 1967 with total page 200 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Behavioral Portfolio Theory Revisited by : Andreas Oehler
Download or read book Behavioral Portfolio Theory Revisited written by Andreas Oehler and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the relation between households' wealth and relative risk aversion (RRA) in two different frameworks: the Behavioral Portfolio Theory (BPT) and Merton's (1969) consumption and portfolio choice model (CPCM). We apply the BPT to field data for the first time and show that the BPT provides a better fit than the CPCM to explain the financial risk-taking of the households in Deutsche Bundesbank's Panel on Household Finances-Survey. However, both models indicate decreasing RRA. While households' education and financial literacy hardly improve the fit of either model, households show a different risk-taking behavior in accordance with their self-assessed risk attitude.
Book Synopsis Risk Preference and Indirect Utility in Portfolio Choice Problems by : Santanu Roy
Download or read book Risk Preference and Indirect Utility in Portfolio Choice Problems written by Santanu Roy and published by . This book was released on 1995 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Role of Risk Aversion in Predicting Individual Behavior by : Luigi Guiso
Download or read book The Role of Risk Aversion in Predicting Individual Behavior written by Luigi Guiso and published by . This book was released on 2005 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Portfolio Theory and Management by : H. Kent Baker
Download or read book Portfolio Theory and Management written by H. Kent Baker and published by Oxford University Press, USA. This book was released on 2013-03-07 with total page 802 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio Theory and Management examines the foundations of portfolio management with the contributions of financial pioneers up to the latest trends. The book discusses portfolio theory and management both before and after the 2007-2008 financial crisis. It takes a global focus by highlighting cross-country differences and practices.
Book Synopsis On Risk Aversion and Portfolio Choice by : Swaminathan Sankaran
Download or read book On Risk Aversion and Portfolio Choice written by Swaminathan Sankaran and published by . This book was released on 1973 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory by : Greg B. Davies
Download or read book Behavioral Investment Management: An Efficient Alternative to Modern Portfolio Theory written by Greg B. Davies and published by McGraw Hill Professional. This book was released on 2012-01-12 with total page 384 pages. Available in PDF, EPUB and Kindle. Book excerpt: The End of Modern Portfolio Theory Behavioral Investment Management proves what many have been thinking since the global economic downturn: Modern Portfolio Theory (MPT) is no longer a viable portfolio management strategy. Inherently flawed and based largely on ideology, MPT can not be relied upon in modern markets. Behavioral Investment Management offers a new approach-one addresses certain realities that MPT ignores, including the fact that emotions play a major role in investing. The authors lay out new standards reflecting behavioral finance and dynamic asset allocation, then explain how to apply these standards to your current portfolio construction efforts. They explain how to move away from the idealized, black-and-white world of MPT and into the real world of investing--placing heavy emphasis on the importance of mastering emotions. Behavioral Investment Management provides a portfolio-management standard for an investing world in disarray. PART 1- The Current Paradigm: MPT (Modern Portfolio Theory); Chapter 1: Modern Portfolio Theory as it Stands; Chapter 2: Challenges to MPT: Theoretical-the assumptions are not thus; Chapter 3: Challenges to MPT: Empirical-the world is not thus; Chapter 4: Challenges to MPT: Behavioural-people are not thus; Chapter 5: Describing the Overall Framework: Investors and Investments; PART 2- Amending MPT: Getting to BMPT; Chapter 1:Investors-The Rational Investor; Chapter 2: Investments-Extracting Value from the long-term; Chapter 3: Investments-Extracting Value from the short-term; Chapter 4: bringing it together, the new BMPT paradigm; PART 3- Emotional Insurance: Sticking with the Journey; Chapter 1: Investors- the emotional investor; Chapter 2: Investments- Constraining the rational portfolio; PART 4- Practical Implications; Chapter 1: The BMPT and Wealth Management; Chapter 2: The BMPT and the Pension Industry; Chapter 3: The BMPT and Asset Managemen
Book Synopsis Handbook of the Economics of Risk and Uncertainty by : Mark Machina
Download or read book Handbook of the Economics of Risk and Uncertainty written by Mark Machina and published by Newnes. This book was released on 2013-11-14 with total page 897 pages. Available in PDF, EPUB and Kindle. Book excerpt: The need to understand the theories and applications of economic and finance risk has been clear to everyone since the financial crisis, and this collection of original essays proffers broad, high-level explanations of risk and uncertainty. The economics of risk and uncertainty is unlike most branches of economics in spanning from the individual decision-maker to the market (and indeed, social decisions), and ranging from purely theoretical analysis through individual experimentation, empirical analysis, and applied and policy decisions. It also has close and sometimes conflicting relationships with theoretical and applied statistics, and psychology. The aim of this volume is to provide an overview of diverse aspects of this field, ranging from classical and foundational work through current developments. Presents coherent summaries of risk and uncertainty that inform major areas in economics and finance Divides coverage between theoretical, empirical, and experimental findings Makes the economics of risk and uncertainty accessible to scholars in fields outside economics
Book Synopsis Portfolio Choice and Risk by : José Encarnación
Download or read book Portfolio Choice and Risk written by José Encarnación and published by . This book was released on 1983 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Risk Aversion and Portfolio Choice. Edited by Donald D. Hester and James Tobin. Contributors: George J. Feeney [and Others], Etc by : Donald Denison HESTER (and TOBIN (James) University of Yale.)
Download or read book Risk Aversion and Portfolio Choice. Edited by Donald D. Hester and James Tobin. Contributors: George J. Feeney [and Others], Etc written by Donald Denison HESTER (and TOBIN (James) University of Yale.) and published by . This book was released on 1967 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Portfolio Choice with Endogenous Utility by : Michael J. Stutzer
Download or read book Portfolio Choice with Endogenous Utility written by Michael J. Stutzer and published by . This book was released on 2003 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides an alternative behavioral foundation for an investor's use of power utility in the objective function and its particular risk aversion parameter. The foundation is grounded in an investor's desire to minimize the objective probability that the growth rate of invested wealth will not exceed an investor-selected target growth rate. Large deviations theory is used to show that this is equivalent to using power utility, with an argument that depends on the investor's target, and a risk aversion parameter determined by maximization. As a result, an investor's risk aversion parameter is not independent of the investment opportunity set, contrary to the standard model assumption.
Book Synopsis Discrete-Time Behavioral Portfolio Selection Under Prospect Theory by : Yun Shi
Download or read book Discrete-Time Behavioral Portfolio Selection Under Prospect Theory written by Yun Shi and published by . This book was released on 2014 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: We formulate and study a general multi-period behavioral portfolio selection model under Kahneman and Tversky's prospect theory, featuring an incomplete market and an S-shaped utility function. We first discuss the ill-posedness issue under a multi-period framework and identify the conditions for the well-posedness under which infinitely leveraging an asset is not optimal for the investor. Moreover, we show that the well-posedness of the multi-period portfolio selection problem can be characterized in terms of an induced loss-aversion measure, which is an increasing function of time. Under the conditions for well-posedness, we solve the multi-period behavioral portfolio selection problem completely by deriving its semi-analytical optimal policy. In particular, we identify two cases: the case with one risky asset and the case with multiple risky assets that are jointly elliptically distributed, under which the optimal behavioral portfolio policy takes a piecewise linear feedback form. For the multiple risky assets case, we further demonstrate that the two-fund separation is still valid under the S-shaped utility. We also discuss the implications of our findings to the well documented phenomena of non-participation effect and horizon effect.
Book Synopsis An Exact Solution to the Portfolio Choice Problem Under Transactions Costs by : Bernard Dumas
Download or read book An Exact Solution to the Portfolio Choice Problem Under Transactions Costs written by Bernard Dumas and published by . This book was released on 1989 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Finance and the Behavioral Prospect by : James Ming Chen
Download or read book Finance and the Behavioral Prospect written by James Ming Chen and published by Springer. This book was released on 2016-10-01 with total page 350 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book explains how investor behavior, from mental accounting to the combustible interplay of hope and fear, affects financial economics. The transformation of portfolio theory begins with the identification of anomalies. Gaps in perception and behavioral departures from rationality spur momentum, irrational exuberance, and speculative bubbles. Behavioral accounting undermines the rational premises of mathematical finance. Assets and portfolios are imbued with “affect.” Positive and negative emotions warp investment decisions. Whether hedging against intertemporal changes in their ability to bear risk or climbing a psychological hierarchy of needs, investors arrange their portfolios and financial affairs according to emotions and perceptions. Risk aversion and life-cycle theories of consumption provide possible solutions to the equity premium puzzle, an iconic financial mystery. Prospect theory has questioned the cogency of the efficient capital markets hypothesis. Behavioral portfolio theory arises from a psychological account of security, potential, and aspiration.
Book Synopsis What Drives the Heterogeneity in Portfolio Choice? The Role of Institutional, Traditional, and Behavioral Factors by : Markku Kaustia
Download or read book What Drives the Heterogeneity in Portfolio Choice? The Role of Institutional, Traditional, and Behavioral Factors written by Markku Kaustia and published by . This book was released on 2019 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze household stock market participation and allocation in a survey covering 19 European countries. We jointly control for all relevant variables from prior studies, which typically focus on one at a time, and omit risk-aversion. Excellent full model predictive power decomposes into institutional (country) fixed effects (30%), traditional individual-level variables (50%), and more recently identified behavioral variables (20%), and a single latent factor captures 93% of total explanatory power. We sketch a hierarchical framework where factors' effects vary by agents' proneness to participate. We also challenge and complement existing interpretations given to IQ, sociability, trust, and life experiences.
Book Synopsis Higher-Order Risk Preferences, Constant Relative Risk Aversion and the Optimal Portfolio Allocation by : Trino Manuel Ñíguez
Download or read book Higher-Order Risk Preferences, Constant Relative Risk Aversion and the Optimal Portfolio Allocation written by Trino Manuel Ñíguez and published by . This book was released on 2015 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive the conditions for the optimal portfolio choice within a constant relative risk aversion type of utility function considering alternative probability distributions that are able to capture the asymmetric and leptokurtic features of asset returns. We illustrate the role -- beyond risk aversion -- played by higher-order moments in the optimal decision to form a portfolio of risky assets. In particular, we show that higher-order risk attitudes such as prudence and temperance associated with the third and fourth moments of the distribution define different optimal portfolios than those constrained under risk aversion.
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