Benchmarks in Aggregate Household Portfolios

Pascal St-Amour

No 07-09, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Reference–dependent preference models assume that agents derive utility from deviations of consumption from benchmark levels, rather than from consumption levels. These references can be either backward-looking (as explicit in the Habit literature) or forward-looking (as implicitly suggested by Prospect Theory). For both cases, we specify and estimate a fully structural multi-variate Brownian system in optimal consumption, portfolio and wealth using aggregate household financial and real estate wealth data. Our results reveal that references are (i) strongly relevant, (ii) state-dependent, and (iii) that the data is more consistent with the backwardthan the forward-looking reference model.

Keywords: Portfolio choice; Reference–dependent utility; Habit; Prospect; Estimation of diffusion processes (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2007-01
New Economics Papers: this item is included in nep-upt
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Related works:
Working Paper: Benchmarks in Aggregate Household Portfolios (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0709

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