Loss Aversion with Multiple Investment Goals

Item Type Journal paper
Abstract This paper presents a time-continuous portfolio selection model with loss averse investors, who possess multiple investment goals at different time horizons. The model assumes partial narrow framing. Investors follow a two-step approach. First, they optimally allocate wealth among investment goals. Second, they determine an optimal investment strategy for each investment goal separately. We show that when loss aversion is according to the experimental findings, investors mainly invest their wealth to reach long-term goals and adopt investment strategies with high leverage to reach short-term goals. The overall strategy also display high leverage. The same patterns is observed when loss aversion is extreme and goals are very ambitious. By contrast, when loss aversion is extreme but goals are not too ambitious, investors mainly invest to reach short-term goals and adopt safe investment strategies for this purpose.
Authors De Giorgi, Enrico
Projects De Giorgi, Enrico & Audrino, Francesco (2010) Applying Recent Developments in Computational Statistics to Behavioral Asset Pricing and Portfolio Selection [applied research project]
Journal or Publication Title Mathematics and Financial Economics
Language English
Keywords loss aversion, risk seeking, mental accounting, narrow framing, portfolio selection.
Subjects economics
HSG Classification contribution to scientific community
HSG Profile Area SEPS - Quantitative Economic Methods
Refereed Yes
Date 1 October 2011
Publisher Springer Verlag
Place of Publication Heidelberg
Volume 5
Number 3
Page Range 203-227
Number of Pages 25
ISSN 1862-9679
ISSN-Digital 1862-9660
Publisher DOI https://doi.org/10.1007/s11579-011-0057-y
Depositing User Prof. Ph.D Enrico Giovanni De Giorgi
Date Deposited 20 Aug 2009 09:04
Last Modified 23 Aug 2016 11:06
URI: https://www.alexandria.unisg.ch/publications/55579

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De Giorgi, Enrico (2011) Loss Aversion with Multiple Investment Goals. Mathematics and Financial Economics, 5 (3). 203-227. ISSN 1862-9679

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https://www.alexandria.unisg.ch/id/eprint/55579
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