Dynamic Portfolio Selection and Asset Pricing Under Neo-Additive Probability Weighting

• 成果类型: Article; Early Access
• 署名作者: He, Xue Dong; Sun, Yu
• 署名单位: Chinese University of Hong Kong; Peking University Shenzhen Graduate School (PKU Shenzhen); Peking University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.03551
• 发表日期: 2026
• 关键词: RANK-DEPENDENT UTILITY; probability weighting; time inconsistency; PORTFOLIO SELECTION; asset pricing

摘要

We study a dynamic portfolio selection problem in which an agent trades a stock and a risk-free asset with the objective of maximizing the rank-dependent utility of their wealth at the terminal time of the investment horizon. Because of time inconsistency, we consider three types of agents, namely precommitted, sophisticated, and naive agents, who differ from each other in whether they are aware of the time inconsistency and whether they have self-control. Assuming a neo-additive probability weighting function, we solve the strategies of these agents. We find that the precommitted agent takes a loss-exit strategy, leading to a positively skewed terminal wealth, and that the sophisticated agent is less willing to participate in the stock market than the precommitted and naive agents. We also study equilibrium asset pricing and find that with a precommitted representative agent, stock returns exhibit a reversal effect, and the initial stock price is lower than in the case of a naive representative agent or a sophisticated representative agent.