Transaction costs and predictability: some utility cost calculations

Balduzzi, Pierluigi; Lynch, Anthony W.

doi:10.1016/s0304-405x(99)00004-5

Cited by 457 publications

(305 citation statements)

References 33 publications

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“…Balduzzi and Lynch (1999) and Lynch and Balduzzi (2000) argue that long-term oriented investors are inclined to invest a greater proportion of their wealth in stocks than short-term oriented investors. We include a measure of investors' time preferences in order to examine the independent effect of myopia.…”

Section: Other Psychological Variablesmentioning

confidence: 99%

Myopic loss aversion and stock investments: An empirical study of private investors

Lee

Veld‐Merkoulova

2016

Journal of Banking & Finance

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Myopic loss aversion was suggested by Benartzi and Thaler (1995) as an explanation for the equity premium puzzle. Its main prediction is that loss averse investors, who evaluate their investment performance too frequently and therefore often observe small losses on their stock portfolios, would invest too little in equity. We investigate the link between myopic loss aversion and actual investment decisions of individual investors, using survey data. Our results are consistent with the predictions of Benartzi and Thaler. Higher myopic loss aversion is associated with lower stock investment as a share of total assets. Investors tend to evaluate their stock portfolio performance too often, which contributes to the prevalence of myopic loss aversion. The effect of myopia is most apparent when investors both evaluate their portfolios frequently and trade stocks regularly.

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Section: Other Psychological Variablesmentioning

confidence: 99%

Myopic loss aversion and stock investments: An empirical study of private investors

Lee

Veld‐Merkoulova

2016

Journal of Banking & Finance

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“…There are two reasons for using power utility. One is that an explicit solution can be obtained for our model with power utility [26][27][28][29], but not with other utility functions (e.g., exponential or quadratic utility). The other is that power utility leads to an optimal solution which is independent of wealth and thus will W r r r r r W r…”

Section: Optimal Fraction For a Three-asset Modelmentioning

confidence: 99%

Stochastic Control for Asset Management

Kung¹,

Wong²,

Wu³

2013

JMF

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An investor is often faced with the investment situation in which he/she has to decide how to allocate his/her limited funds optimally among different assets to maximize his/her expected utility over the holding period. To this end, this study sets up a dynamic model driven by three assets to characterize the stochastic nature of the securities market and uses stochastic control to derive an explicit formula for the optimal fraction invested in each of the three assets for an investor with a power utility and a holding period of 10 years. Using estimated parameter values as inputs and implicit finite difference method, we determine numerically the optimal percentages invested in the three assets at each time over the holding period for both less risk-averse and more risk-averse investors.

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“…2 Kim and Omberg (1996), Brennan, Schwartz and Lagnado (1997), Brandt (1999), Campbell and Viceira (1999), Balduzzi and Lynch (1999), Barberis (2000), Campbell et. al.…”

Section: Introductionmentioning

confidence: 99%

Stock Market Mean Reversion and Portfolio Choice over the Life Cycle

Michaelides¹,

Zhang²

2017

J. Financ. Quant. Anal.

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We solve for optimal consumption and portfolio choice in a life-cycle model with shortsales and borrowing constraints, undiversi…able labor income risk and a predictable, timevarying, equity premium and show that the investor pursues aggressive market timing strategies. Importantly, in the presence of stock market predictability, the model suggests that the conventional …nancial advice of reducing stock market exposure as retirement approaches is correct on average, but ignoring changing market information can lead to substantial welfare losses. Therefore, enhanced target-date funds (ETDFs) that condition on expected equity premia increase welfare relative to target-date funds (TDFs). Out-of-sample analysis supports these conclusions.JEL Classi…cation: E21, G11.

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Transaction costs and predictability: some utility cost calculations

Cited by 457 publications

References 33 publications

Myopic loss aversion and stock investments: An empirical study of private investors

Myopic loss aversion and stock investments: An empirical study of private investors

Stochastic Control for Asset Management

Stock Market Mean Reversion and Portfolio Choice over the Life Cycle

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