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Asymmetries and Por...
Asymmetries and Portfolio Choice
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- Dahlquist, Magnus (author)
- Stockholm School of Economics,Handelshögskolan i Stockholm
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- Farago, Adam, 1984 (author)
- Gothenburg University,Göteborgs universitet,Centrum för finans,Institutionen för nationalekonomi med statistik,Centre for Finance,Department of Economics,University of Gothenburg (SE)
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- Tédongap, Roméo (author)
- ESSEC Business School
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(creator_code:org_t)
- 2016-11-03
- 2017
- English.
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In: The Review of financial studies. - : Oxford University Press (OUP). - 0893-9454 .- 1465-7368. ; 30:2, s. 667-702
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Abstract
Subject headings
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- We examine the portfolio choice of an investor with generalized disappointment-aversion preferences who faces log returns described by a normal-exponential model. We derive a three-fund separation strategy: the investor allocates wealth to a risk-free asset, a standard mean-variance efficient fund, and an additional fund reflecting return asymmetries. The optimal portfolio is characterized by the investor’s endogenous effective risk aversion and implicit asymmetry aversion. In empirical applications, we find that disappointment aversion is associated with much larger asymmetry aversion than are standard preferences. Our model explains patterns in popular portfolio advice across both risk appetites and investment horizons.
Subject headings
- SAMHÄLLSVETENSKAP -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)
- SOCIAL SCIENCES -- Economics and Business -- Economics (hsv//eng)
Publication and Content Type
- ref (subject category)
- art (subject category)
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