Portfolio performance evaluation with loss aversion |
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Authors: | Valeri Zakamouline |
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Affiliation: | 1. Faculty of Economics , University of Agder , Service Box 422, Kristiansand , 4604 , Norway valeri.zakamouline@uia.no |
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Abstract: | In this paper we consider a loss-averse investor equipped with a specific, but still quite general, utility function motivated by behavioral finance. We show that, under certain concrete assumptions concerning the form of this utility, one can derive closed-form solutions for the investor's portfolio performance measure. We investigate the effects of loss aversion and demonstrate its important role in performance measurement. The framework presented in this paper also provides a sound theoretical foundation for all known performance measures based on partial moments of the distribution. |
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Keywords: | Behavioural finance Decision theory Performance evaluation Risk measures |
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