Anders E. S. Anderson
Anders E. S. Anderson: Swedish Institute for Financial Research, Postal: Saltmätargatan 19 A, 4th fl., SE-113 59 Stockholm, Sweden
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.
38 pages, April 15, 2004
Full text files
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 ().
This page generated on 2018-01-23 23:37:48.