We provide examples of pitfalls for parametric portfolio policies as introduced by Brandt, Santa Clara and Valkanov (RFS 2009). For the leading case of constant relative risk aversion (CRRA) strong assumptions on the properties of the returns, the variables used to implement the parametric...

Momentum strategies generate significant positive returns over long investment horizons; however these strategies experience infrequent periods of large negative returns. These periods are known as 'momentum crashes'. We demonstrate that the probability of a momentum crash is time-varying,...

Behavioral finance tries to make sense of financial data using models that are based on psychologically accurate assumptions about people's beliefs, preferences, and cognitive limits. I review behavioral finance approaches to understanding asset prices and trading volume, with particular...

We examine how the evidence of mean-reversion in stock returns affects dynamic trading behavior for investors with prospect-theory preferences. Particular attention is paid to the trading incentives created by the interaction between prospect-theory preferences and mean-reverting return...

We provide examples of pitfalls for parametric portfolio policies as introduced by Brandt, Santa Clara and Valkanov. For the leading case of constant relative risk aversion (CRRA) strong assumptions on the properties of the returns, the variables used to implement the parametric portfolio policy...

Investor behavior in the investment decision making is something dynamic, since the behavior is influenced by the respond of investor to the opportunity and demanding offered by the changes of economic environment. The changes of the economic environment can support the variety of investor...

Cultural differences in thought processes (i.e., holistic versus analytic thinking) have been suggested as an explanation for different susceptibility to framing effects. To test this, we conducted an experiment which investigates several framing problems and various measures of cognitive modes...

This paper explicitly derives the optimal dynamic consumption and portfolio choice of an individual with prospect theory preferences. The individual is loss averse, endogenously updates his reference level over time, and distorts probabilities. We show that the optimal consumption strategy is...

We study a unique field experiment in India in which 1.5 million stock investors face lotteries for the random allocation of shares. We find that the winners of these randomly assigned initial public offering (IPO) lottery shares are significantly more likely to hold them than lottery losers 1,...

Shortfall aversion reflects the higher utility loss of spending cuts from a reference than the utility gain from similar spending increases. Inspired by Prospect Theory's loss aversion and the peak-end rule, this paper posits a model of utility from spending scaled by past peak-spending. In...