This paper investigates the impacts of background risk on an investor's portfolio choice in a mean-variance framework, and analyzes the properties of efficient portfolios as well as the investor's hedging behaviour in the presence of background risk. Our model implies that the efficient...

This paper analyzes international portfolio selection with exchange risk based on behavioural portfolio theory (BPT). We characterize the conditions under which the BPT problem with a single foreign market has an optimal solution, and show that the optimal portfolio contains the traditional...

This paper analyzes the influence of downside risk on defaultable bond returns. By introducing a defaultable bond-trading model, we show that the decline in market risk tolerance and information accuracy leads to trading loss under downside conditions. Our empirical analysis indicates that...