Prospect Theory (PT) and Constant Relative Risk Aversion (CRRA) have clear-cut implications for the optimal asset allocation between stocks and the risk-free asset as a function of the investment horizon. While CRRA preferences imply that the allocation should be independent of the horizon, we...

The most commonly employed decision making paradigms are expected utility, prospect theory and regret theory. We examine the simple heuristic of maximizing the probability of being ahead, which in some natural economic situations may be in contradiction to all three of the above fundamental...

Expected returns, variances, betas, and alphas are all non-linear functions of the investment horizon. This seems to be a fatal conceptual problem for the capital asset pricing model (CAPM), which assumes a unique common horizon for all investors. We show that under the standard assumptions, the...