Downside loss aversion: Winner or loser?

详细信息    查看全文

• 作者：Ines Fortin ; Jaroslava Hlouskova
• 关键词：Quadratic/downside loss aversion ; Portfolio optimization ; MV portfolios ; CVaR portfolios ; Investment strategy
• 刊名：Mathematical Methods of Operations Research (ZOR)
• 出版年：2015
• 出版时间：April 2015
• 年：2015
• 卷：81
• 期：2
• 页码：181-233
• 全文大小：561 KB
• 参考文献：Artzner P, Delbaen F, Eber J-M, Heath D (1999) Coherent measures of risk. Math Finance 9:203鈥?28
  Bank for International Settlements (2006) International convergence of capital measurement and capital standards. Basel Committee on Banking Supervision, Basel
  Bank for International Settlements (2010) Basel III: A global regulatory framework for more resilient banks and banking systems. Basel Committee on Banking Supervision, Basel
  Barberis N, Huang M (2001) Mental accounting, loss aversion and individual stock returns. J Finance 56:1247鈥?292View Article
  Barberis N, Xiong W (2009) What drives the disappointment affect? An analysis of a long-standing preference-based explanation. J Finance 64:751鈥?84View Article
  Berkelaar A, Kouwenberg R (2009) From boom 鈥榯il bust: how loss aversion affects asset prices. J Bank Finance 33:1005鈥?013View Article
  Bowman D, Minehart D, Rabin M (1999) Loss aversion in a consumption-savings model. J Econ Behav Organ 38:155鈥?78View Article
  Christoffersen PF, Diebold FX (1997) Optimal prediction under asymmetric loss. Econom Theory 13:808鈥?17View Article MathSciNet
  De Giorgi E, Hens T (2006) Making prospect theory fit for finance. Financ Mark Portf Manag 20:339鈥?60View Article
  Fortin I, Hlouskova J (2011) Optimal asset allocation under linear loss aversion. J Bank Finance 35:2974鈥?990View Article
  Gomes FJ (2005) Portfolio choice and trading volume with loss-averse investors. J Bus 78:675鈥?06View Article
  Granger CWJ (1969) Prediction with a generalized cost of error function. Oper Res Q 20:199鈥?07View Article MATH MathSciNet
  He XD, Zhou YZ (2011) Portfolio choice under cumulative prospect theory: an analytical treatment. Manag Sci 57:315鈥?31View Article MATH
  Hlouskova J, Tsigaris P (2012) Capital income taxation and risk taking under prospect theory. Int Tax Public Finance 19:554鈥?73View Article
  Hlouskova J, Mikocziova J, Sivak R, Tsigaris P (2014) Capital income taxation and risk taking under prospect theory: the continuous distribution case. Czech J Econ Finance 64:374鈥?91
  Hwang S, Satchell SE (2010) How loss averse are investors in financial markets? J Bank Finance 34:2425鈥?438View Article
  Jarrow R, Zhao F (2006) Downside loss aversion and portfolio management. Manag Sci 52:558鈥?66View Article MATH
  Kahneman D, Tversky A (1979) Prospect theory: an analysis of decision under risk. Econometrica 47:363鈥?91View Article
  K枚bberling V, Wakker PP (2005) An index of loss aversion. J Econ Theory 122:119鈥?31View Article MATH
  Lucas A, Siegmann A (2008) The effect of shortfall as a risk measure for portfolios with hedge funds. J Bus Finance Account 35:200鈥?26View Article
  Markowitz HM (1952) Portfolio selection. J Finance 7:77鈥?1
  Neilson WS (2002) Comparative risk sensitivity with reference-dependent preferences. J Risk Uncertain 24:131鈥?42View Article MATH
  O鈥機onnell PGJ, Teo M (2009) Institutional investors, past performance, and dynamic loss aversion. J Financ Quant Anal 44:155鈥?88View Article
  Rockafellar R, Uryasev S (2000) Optimization of conditional value at risk. J Risk 2:21鈥?2
  Shadwick WF, Keating C (2002) A universal performance measure. J Perform Meas 6:59鈥?4
  Siegmann A (2007) Optimal investment policies for defined benefit pension funds. J Pension Econ Finance 6:1鈥?0View Article
  Siegmann A, Lucas A (2005) Discrete-time financial planning models under loss-averse preferences. Oper Res 53:403鈥?14View Article MATH MathSciNet
  Tversky A, Kahneman D (1992) Advances in prospect theory: cumulative representation of uncertainty. J Risk Uncertain 5:297鈥?23View Article MATH
  Varian H (1974) Equity, envy and efficiency. J Econ Theory 9:63鈥?1View Article MathSciNet
  Wakker P, Tversky A (1993) An axiomatization of cumulative prospect theory. J Risk Uncertain 7:147鈥?76View Article MATH
  Zeller A (1986) Bayesian estimation and prediction using asymmetric loss functions. J Am Stat Assoc 81:446鈥?51View Article
  Zhang W, Semmler W (2009) Prospect theory for stock markets: empirical evidence with time-series data. J Econ Behav Organ 72:835鈥?49View Article
  
• 作者单位：Ines Fortin (1)
  Jaroslava Hlouskova (1) (2)
  
  1. Department of Economics and Finance, Institute for Advanced Studies, Stumpergasse 56, 1060, Vienna, Austria
  2. School of Business and Economics, Thompson Rivers University, Kamloops, British Columbia, Canada
  
• 刊物类别：Mathematics and Statistics
• 刊物主题：Mathematics
  Calculus of Variations and Optimal Control
  Operation Research and Decision Theory
  Business
  
• 出版者：Physica Verlag, An Imprint of Springer-Verlag GmbH
• ISSN：1432-5217

文摘

We study the asset allocation of a quadratic loss-averse (QLA) investor. First, we derive conditions under which the QLA problem is equivalent to the mean-variance (MV) and conditional value-at-risk (CVaR) problems. Then we solve analytically the two-asset problem of the QLA investor for one risk-free and one risky asset. We find that the optimal QLA investment in the risky asset is finite, strictly positive, and minimal with respect to the reference point for a value strictly larger than the risk-free rate. Finally, we implement the trading strategy of a QLA investor who reallocates her portfolio on a monthly basis using 13 EU and 13 US assets. Using risk-adjusted performance measures that do not target specific types of utility we find that QLA portfolios mostly outperform MV and CVaR portfolios; and that incorporating a conservative dynamic update of the QLA parameters, which is based on the historical patterns of bull and bear markets, improves the performance of QLA portfolios. Compared with linear loss-averse portfolios, QLA portfolios display significantly less risk but they also yield lower returns.