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Chinese Journal of Management Science

Chinese Journal of Management Science ›› 2007, Vol. 15 ›› Issue (5): 42-47.

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Optimal Portfolio Choice Model Based On Loss Aversion

XU Xu-song1, MA Li-li1, CHEN Yan-bin2   

  1. 1. School of Business, Wuhan University, Wuhan 430072, China;
    2. School of Economics, Renmin University of China, Beijing 100872, China
  • Received:2006-07-28 Revised:2007-09-25 Online:2007-10-31 Published:2007-10-31

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Abstract: The essential behavior of an investor will influence his financial activities. In this paper we take the loss aversion into account and derive utility not only from terminal wealth but also from changes in financial wealth. We propose an optimal portfolio choice model based on loss aversion to maximize the expected utility,and obtain portfolio frontiers of the new model with different scaling parameters of changes in wealth through the empirical study in Shanghai stock market.

Key words: expected utility, optimal portfolio choice model, loss aversion

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