We examine a simple measure of portfolio performance based on prospect theory, which captures not only risk and return but also reflects differential aversion to upside and downside risk. The measure we propose is a ratio of gains to losses, with the gains and losses weighted (if desired) to...

We examine a simple measure of portfolio performance based on prospect theory, which captures not only risk and return but also reflects differential aversion to upside and downside risk. The measure we propose is a ratio of gains to losses, with the gains and losses weighted (if desired) to...

We examine a simple measure of portfolio performance based on prospect theory, which captures not only risk and return but also reflects differential aversion to upside and downside risk. The measure we propose is a ratio of gains to losses, with the gains and losses weighted (if desired) to...

By formulating a nested test of the asymmetric response model of Bawa, Brown, and Klein (1981), the mean-lower partial moment CAPM (LPMCAPM) of Bawa and Lindenberg (1977) and the mean-variance CAPM of Sharpe (1963, 1964), Lintner (1965) and Mossin (1969), this paper investigates the relative...

The purpose of this paper is to derive explicit formulae for the asset allocation decision for the loss aversion utility function proposed by Kahneman and Tuversky. We show that these utility functions exhibit constant absolute risk aversion. We also give analytic results which interpret the...

This paper proposes an unobserved fundamental component of volatility as a measure of risk. This concept of fundamental volatility may be more meaningful than the usual measures of volatility for market regulators. Fundamental volatility can be obtained using a stochastic volatility model, which...