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Asian Review of Financial Research, Vol., No..
pp.1185~1214
pp.1185~1214
Optimal Portfolio Selection under Disappointment Averse Utility
Ji Hee Yoon Department of Mathematical Sciences, KAIST, Daejeon, Korea.
In this paper, we consider the portfolio choice problem for Gul(1991)'s disappointment averse investors in continuous time economy. Assuming a complete market and general ge- ometric Brownian motions for asset prices, we provide the analytic method to derive the formulas for the optimal wealth and portfolio weight. In order to explore some important implications, we use the disappointment aversion preferences of Gul(1991) associated with the constant relative risk aversion utility and compare it to the standard CRRA utility. We show that the portfolio weight under the disappointment aversion model is less than under the standard CRRA model. This result partially explains the portfolio puzzle of Mankiw and Zeldes(1991). Also, we ?nd that the portfolio weight under the disappointment aversion model is changed among the time horizon.
Ji Hee Yoon
In this paper, we consider the portfolio choice problem for Gul(1991)'s disappointment averse investors in continuous time economy. Assuming a complete market and general ge- ometric Brownian motions for asset prices, we provide the analytic method to derive the formulas for the optimal wealth and portfolio weight. In order to explore some important implications, we use the disappointment aversion preferences of Gul(1991) associated with the constant relative risk aversion utility and compare it to the standard CRRA utility. We show that the portfolio weight under the disappointment aversion model is less than under the standard CRRA model. This result partially explains the portfolio puzzle of Mankiw and Zeldes(1991). Also, we ?nd that the portfolio weight under the disappointment aversion model is changed among the time horizon.
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