Abstract
In this contribution, we address the issue of reference dependence within a behavioral portfolio model defined under Cumulative Prospect Theory. In such a framework, an investor selects the portfolio weights in order to maximize her prospect value, where portfolio returns are measured as deviations from a certain reference point. The location of this reference point affects actual investment decisions. We consider alternative hypothesis and perform an application to the European equity market.
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Notes
- 1.
In the numerical experiments, we use the parameters estimated by Tversky and Kahneman [6]: \(\lambda =2.25\) and \(a = b = 0.88\) (referred to as TK sentiment).
- 2.
In the applications, we use the (TK) parameters estimated by [6]: \(\gamma ^+=0.61\) and \(\gamma ^-=0.69\), for \(w^-\) and \(w^+\), respectively.
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Barro, D., Corazza, M., Nardon, M. (2022). Reference Dependence in Behavioral Portfolio Selection. In: Corazza, M., Perna, C., Pizzi, C., Sibillo, M. (eds) Mathematical and Statistical Methods for Actuarial Sciences and Finance. MAF 2022. Springer, Cham. https://doi.org/10.1007/978-3-030-99638-3_10
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DOI: https://doi.org/10.1007/978-3-030-99638-3_10
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