Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82710
Authors: 
Ågren, Martin
Year of Publication: 
2006
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2006:24
Abstract: 
The paper relates cumulative prospect theory to the moments of returns distributions, e.g. skewness and kurtosis, assuming returns are normal inverse Gaussian distributed. The normal inverse Gaussian distribution parametrizes the first- to forth-order moments, making the investigation straightforward. Cumulative prospect theory utility is found to be positively related to the skewness. However, the relation is negative when probability weighing is set aside. This shows that cumulative prospect theory investors display a preference for skewness through the probability weighting function. Furthermore, the investor’s utility is inverse hump-shape related to the kurtosis. Consequences for portfolio choice issues are studied. The findings, among others, suggest that optimal cumulative prospect theory portfolios are not meanvariance efficient under the normal inverse Gaussian distribution.
Subjects: 
cumulative prospect theory
skewness
kurtosis
normal inverse Gaussian distribution
portfolio choice
JEL: 
C16
D81
G11
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.