Mean-Variance Portfolio Selection with Reference Dependent Preferences

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.

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Year of publication:	2007-04
Authors:	Gerasymchuk, Sergiy
Institutions:	Dipartimento di Matematica Applicata, Università Ca' Foscari Venezia
Subject:	portfolio selection \| S-shaped utility \| prospect theory \| reference point \| mean-variance analysis \| demand for the risky asset \| target-based decisions

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Extent:	application/pdf
Series:	Working Papers. - ISSN 1828-6887.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 150 19 pages
Classification:	D81 - Criteria for Decision-Making under Risk and Uncertainty ; G11 - Portfolio Choice
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005076138