Portfolio selection with mental accounts: An equilibrium model with endogenous risk aversion

Gordon Alexander, Alexandre Baptista () and Shu Yan

Journal of Banking & Finance, 2020, vol. 110, issue C

Abstract: In Das et al. (2010), an agent divides his or her wealth among mental accounts that have different goals and optimal portfolios. While the moments of the distribution of asset returns are exogenous in their normative model, they are endogenous in our corresponding positive model. We obtain the following results. First, there are multiple equilibria that we parameterize by the implied risk aversion coefficient of the agent’s aggregate portfolio. Second, equilibrium asset prices and the composition of optimal portfolios within accounts depend on this coefficient. Third, altering the goal of any given account affects the composition of each portfolio.

Keywords: Portfolio selection; Mental accounts; Equilibrium; Endogenous risk aversion; Behavioral finance; Mean-variance model (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:110:y:2020:i:c:s0378426619301669

DOI: 10.1016/j.jbankfin.2019.07.019

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