Traditional finance explains individual investors' behavior and financial decision-making based on economic incentives and rationality. Modern finance, however, takes a holistic view and searches for not only economic but also biological, psychological, and social factors that shape...

In standard financial model which is proposed by Markuitz, the basis of financial activity is on logical act of investors. With establishment of a branch named behavioral finance which is based on the works of Kahneman and Tuerski, the role of psychology of investors and the results of...

We determine a simple dynamic benchmark for asset allocation by solving an optimal stochastic control problem for outperforming the traditional constant proportion benchmark. An objective function based on a time averaged quadratic deviation from an elevated benchmark is proposed. We argue that...

This paper considers a general class of stochastic dynamic choice models with discrete and continuous decision variables. This class contains a variety of models that are useful for modeling intertemporal household decisions under risk. Our examples are drawn from the field of development...

This paper studies optimal saving and investment behaviour of a household that can either invest in a riskless or a risky saving technology when risk results from a Poisson process. The focus is on behaviour of households in a general equilibrium setup. Poisson processes are introduced since...

This paper considers a general class of stochastic dynamic choice models with discrete and continuous decision variables. This class contains a variety of models that are useful for modeling intertemporal household decisions under risk. Our examples are drawn from the field of development...

We introduce a model for portfolio selection with an extendable investment universe where the agent faces a trade-off between exploiting existing and exploring for new investment opportunities. An agent with mean-variance preferences starts with an existing investment universe consisting of a...

We examine the impact of return predictability and parameter uncertainty on investors' long-term portfolio allocations in the context of disappointment aversion. We find persisting horizon effects, with stocks appearing progressively more attractive at longer horizons as opposed to shorter ones....

In dynamic portfolio choice problems, stochastic state variables such as stochastic volatility lead to adjustments of the optimal stock demand referred to as hedge terms or Merton-Breeden terms. By deriving an explicit solution in a multi-agent framework with a stochastic opportunity set, we...

This paper studies optimal equity portfolios with long-term horizon under heterogeneous risk aversion levels. We focus on European stocks and empirically show that contemporaneous excess returns of semi-active strategies are negatively associated with market conditions and sentiment. Consistent...