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Autoren: 
Fortin, Ines
Hlouskova, Jaroslava
Datum: 
2012
Reihe/Nr.: 
Reihe Ökonomie / Economics Series 291
Zusammenfassung: 
We study the asset allocation of a quadratic loss-averse (QLA) investor and derive conditions under which the QLA problem is equivalent to the mean-variance (MV) and conditional value-at-risk (CVaR) problems. Then we solve analytically the two-asset problem of the QLA investor for a risk-free and a risky asset. We find that the optimal QLA investment in the risky asset is finite, strictly positive and is minimal with respect to the reference point for a value strictly larger than the risk-free rate. Finally, we implement the trading strategy of a QLA investor who reallocates her portfolio on a monthly basis using 13 EU and US assets. We find that QLA portfolios (mostly) outperform MV and CVaR portfolios and that incorporating a conservative dynamic update of the QLA parameters improves the performance of QLA portfolios. Compared with linear loss-averse portfolios, QLA portfolios display significantly less risk but they also yield lower returns.
Schlagwörter: 
quadratic loss aversion
prospect theory
portfolio optimization
MV and CVaR portfolios
investment strategy
JEL: 
D03
D81
G11
G15
G24
Dokumentart: 
Working Paper

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