TY - JOUR
AU1 - Wang, Hongxia
AU2 - Nguyen, Duc Khuong
AU3 - Xiong, Xiong
AU4 - Dai, Peng-Fei
AB - This article provides some analytical proofs for the effects of loss aversion and diminishing sensitivity on portfolio choice. We use the performance index (Omega ratio) of return distribution to characterize the threshold value that determines non-zero investment in the risky asset and show the impact of stochastic improvement of risky return on the threshold. We propose the measure of greater diminishing sensitivity and examine the loss aversion characterizations for large and small stakes. Moreover, we demonstrate that diminishing sensitivity and loss aversion may make opposite predictions on willingness to invest in the risky asset. Specifically, although loss aversion decreases the investment in the risky asset, diminishing sensitivity in the loss domain will predict the opposite.
TI - Portfolio choice under loss aversion and diminishing sensitivity: a theoretical extension
JF - Annals of Operations Research
DO - 10.1007/s10479-022-05081-9
DA - 2025-04-01
UR - https://www.deepdyve.com/lp/springer-journals/portfolio-choice-under-loss-aversion-and-diminishing-sensitivity-a-M0PcGCDfsn
SP - 69
EP - 85
VL - 347
IS - 1
DP - DeepDyve
ER -