This paper considers a model of reference-dependent utility in which the individual makes a conscious choice of her reference point for future consumption. The model incorporates the combination of loss aversion and anticipatory utility as competing forces in the determination of the optimal...

Since the equity premium as well as the risk-free rate puzzle question the concepts central to financial and economic modeling, we apply behavioral decision theory to asset pricing in view of solving these puzzles. U.S. stock market data for the period 1960-2003 and German stock market data for...

Returns to both traditional and risk-managed momentum strategies are non-normal, reducing the efficacy of the Sharpe ratio as an evaluation tool. To account for the higher moments of the return distribution, we evaluate momentum using the framework of myopic loss aversion. Under this framework,...

We evaluate whether machine learning methods can better model excess portfolio returns compared to the standard regression-based strategies generally used in the finance and econometric literature. We examine 17 benchmark factor model specifications based on Expected Utility Theory and theory...

The goal of this study is to test the validity of the prospect theory in the Borsa Istanbul (BIST) over the sample period September 2009 to December 2019. The prospect theory values of the stocks are generated from their historical return distributions following the method by Barberis et al....

Deviations from normality in financial return series have led to the development of alternative portfolio selection models. One such model is the downside risk model, whereby the investor maximizes his return given a downside risk constraint. In this paper we empirically observe the...

Deviations from normality in financial return series have led to the development of alternative portfolio selection models. One such model is the downside risk model, whereby the investor maximizes his return given a downside risk constraint. In this paper we empirically observe the...

Deviations from normality in financial return series have led to the development of alternative portfolio selection models. One such model is the downside risk model, whereby the investor maximizes his return given a downside risk constraint. In this paper we empirically observe the...

This handbook in two parts covers key topics of the theory of financial decision making. Some of the papers discuss real applications or case studies as well. There are a number of new papers that have never been published before especially in Part II. Part I is concerned with Decision Making...