Prospect theory and liquidation decisions

• 成果类型: Article
• 署名作者: Kyle, Albert S.; Ou-Yang, Hui; Xiong, Wei
• 署名单位: Duke University; Princeton University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2005.02.006
• 发表日期: 2006
• 页码: 273-288
• 关键词: Prospect theory; Disposition effect; break-even effect; liquidation decisions

摘要

We solve a liquidation problem for an agent with preferences consistent with the prospect theory of Kahneman and Tversky [Econornetrica 47 (1979) 263-291]. We find that the agent is willing to hold a risky project with a relatively inferior Sharpe ratio if the project is currently making losses. and intends to liquidate it when it breaks even. On the other hand. the agent may liquidate a project with a relatively superior Sharpe ratio if its current profits rise or drop to the break-even point. Our results capture the spirit of the disposition effect and the break-even effect documented in empirical and experimental studies. (c) 2005 Elsevier Inc. All rights reserved.