Dynamic Trading with Reference Point Adaptation and Loss Aversion

• 成果类型: Article
• 署名作者: Shi, Yun; Cui, Xiangyu; Yao, Jing; Li, Duan
• 署名单位: Shanghai University; Shanghai University of Finance & Economics; Fudan University; Chinese University of Hong Kong
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2015.1399
• 发表日期: 2015
• 页码: 789-806
• 关键词: reference-dependent preferences; prospect-theory; portfolio choice; house money; investors; RISK; utility

摘要

We formalize the reference point adaptation process by relating it to a way people perceive prior gains and losses. We then develop a dynamic trading model with reference point adaptation and loss aversion, and derive its semi-analytical solution. The derived optimal stock holding has an asymmetric V-shaped form with respect to prior outcomes, and the related sensitivities are directly determined by the sensitivities of reference point shifts with respect to the outcomes. We also find that the effects of reference point adaptation can be used to shed light on some well documented trading patterns, e.g., house money, break even, and disposition effects.