Why Stocks May Disappoint

@inproceedings{Bekaert2002WhySM,
  title={Why Stocks May Disappoint},
  author={Geert Bekaert and Jun Liu},
  year={2002}
}
We provide a formal treatment of both static and dynamic portfolio choice using the Disappointment Aversion preferences of Gul (1991. Econometrica 59(3), 667–686), which imply asymmetric aversion to gains versus losses. Our dynamic formulation nests the standard CRRA asset allocation problem as a special case. Using realistic data generating processes, we find reasonable equity portfolio allocations for disappointment averse investors with utility functions exhibiting low curvature. Moderate… CONTINUE READING
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