TY  - UNPD
A1  - Curatola, Giuliano Antonio
T1  - Optimal consumption and portfolio choice with loss aversion
T2  - SAFE working paper series ; No. 130
N2  - his paper analyses the consumption-investment problem of a loss averse investor equipped with s-shaped utility over consumption relative to a time-varying reference level. Optimal consumption exceeds the reference level in good times and descend to the subsistence level in bad times. Accordingly, the optimal portfolio is dominated by a mean-variance component in good times and rebalanced more aggressively toward stocks in bad times. This consumption-investment strategy contrasts with customary portfolio theory and is consistent with several recent stylized facts about investors' behaviour. I also analyse the joint effect of loss aversion and persistence of the reference level on optimal choices. Finally, the strategy of the loss averse investor outperforms the conventional Merton-style strategies in bad times, but tend to be dominated by the conventional strategies in good times.
T3  - SAFE working paper - 130 
KW  - Loss-aversion
KW  - Habit-formation
KW  - Consumption-portfolio choice
Y1  - 2016
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/39587
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-395871
UR  - http://ssrn.com/abstract=2749498
PB  - SAFE
CY  - Frankfurt am Main
ER  -