S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Institute for Financial Research SIFR Research Report Series, Institute for Financial Research

No 20:
One for the Gain, Three for the Loss

Anders E. S. Anderson

Abstract: I derive indifference curves in mean-standard deviation space for investors with prospect theory preferences when returns are normally distributed. The normality assumption creates a mapping between model parameters and the investment opportunity set. The model is then calibrated to historical return data for various assumptions regarding the set of admissible risky assets. It is found that the parameter for loss aversion must be higher than three for investors to hold finitely leveraged portfolios. For lower rates of loss aversion, in particular those proposed in the earlier experimental literature, the allocation to risky assets is infinite. Numerical simulations produce similar results when the normality assumption is abandoned.

Keywords: Investor behavior; Portfolio choice; Prospect theory; (follow links to similar papers)

JEL-Codes: G11; (follow links to similar papers)

38 pages, April 15, 2004

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

sifr-wp20.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Anki Helmer ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:sifrwp:0020 This page was generated on 2014-12-14 19:26:49