EXPERIMENTS ON PORTFOLIO SELECTION: A COMPARISON BETWEEN QUANTILE PREFERENCES AND EXPECTED UTILITY DECISION MODELS

Gabriel Montes-Rojas (), Luciano de Castro, Antonio Galvao, Jeong Yeol Kim and Jose Olmo

No 2021-68, Documentos de trabajo del Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET) from Universidad de Buenos Aires, Facultad de Ciencias Económicas, Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET)

Abstract: This paper conducts a laboratory experiment to assess the optimal allocation under quantile preferences (QP) and compares the model predictions with those of a meanvariance (MV) utility function. We estimate the aversion coefficients associated to the individuals’ empirical portfolio under the QP and MV theories, and evaluate the relative predictive of each theory. The experiment assesses individuals’ preferences through a portfolio choice experiment constructed from two assets that may include a risk-free asset. The results of the experiment con rm the suitability of both to predict individuals’ optimal choices. Furthermore, the aggregation of results by individual choices o ers support to the MV theory. However, the aggregation of results by task, which is more informative, provides more support to the QP theory. The overall message that emerges from this experiment is that individuals’ behavior is better predicted by the MV model when it is di cult to assess the differences in the lotteries’ payoff distributions but better described as QP maximizers, otherwise.

Keywords: Optimal asset allocation; Quantile preferences; Portfolio theory; Risk attitude; Predictive ability test (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2021-12
New Economics Papers: this item is included in nep-exp and nep-upt
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Related works:
Journal Article: Experiments on portfolio selection: A comparison between quantile preferences and expected utility decision models (2022)
Working Paper: Experiments on Portfolio Selection: A comparison between quantile preferences and expected utility decision models (2021)
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