Mean-Variance Portfolio Selection with Reference Dependent Preferences

Sergiy Gerasymchuk

No 150, Working Papers from Department of Applied Mathematics, Università Ca' Foscari Venezia

Abstract: We study S-shaped utility maximization for the standard portfolio selection problem with one risky and one risk-free asset. We derive a mean-variance criterium of choice, which preserves reference dependence and the reflection effect. Subsequently, we study diversification possibilities and obtain the demand for the risky asset. We close the paper with an alternative interpretation of the criterium in terms of target-based decision making.

Keywords: portfolio selection; S-shaped utility; prospect theory; reference point; mean-variance analysis; demand for the risky asset; target-based decisions. (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2007-04
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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