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Investors lifecycle asset allocation theory

Author: LiFuJun
Tutor: YangChunPeng
School: Qingdao University
Course: Finance
Keywords: Lifecycle Asset Allocation Behavioral Finance Prospect Theory
CLC: F224
Type: Master's thesis
Year: 2007
Downloads: 288
Quote: 2
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Abstract


Asset Pricing (Asset Pricing) and asset allocation (Asset Allocation) has been a focus for researchers of the financial sector. In which individual investors lifecycle asset allocation issues, there is a traditional financial theory and behavioral finance theory in two different views. Traditional financial theory is that individual investors subject to CRRA (constant relative risk aversion utility), as their age increases, the proportion of risky assets in the asset allocation is decreased. Real data have shown that the proportion of risky assets in the life cycle asset allocation of individual investors showing a traditional financial theory can not explain the hump-shaped. For this vision, based on the theory of behavioral finance, in particular the prospect theory, to explain the hump phenomenon and empirical modeling, the main work of this paper and conclusions are as follows: First, as a traditional asset pricing and asset configuration theoretical basis of constant relative risk aversion utility function (constant relative risk aversion utility function) assumptions, nature and expression. Then introduced a traditional classic asset pricing model: Lucas (1978) model, described on this basis, subject to the conditions CRRA utility function subject to the lognormal distribution and consumption capital asset pricing model (CCAMP). Finally, Jagannathan and Kocherlakota asset allocation model, for example the ideas and methods of the traditional life cycle asset allocation model. Second, a model based on prospect theory utility function. In the BHS model on the basis of this paper a detailed description of the model based on the utility function of prospect theory. Then, this contrast CRRA utility function policy function, review and summarize the nature of the policy function of the utility function of prospect theory. Finally, the use of the policy function based on prospect theory utility function, modeled on the idea of ??Cocco, Gomes and Maenhout (1999), the use of the data for 1000 investors were simulated. Simulation results show that the proportion of stocks in the optimal asset allocation of the life cycle of the different cultural backgrounds of individual investors has emerged as the shape of the hump, which is the actual observation data is consistent. The trajectory of the value of σ and b 0 will affect the proportion of stocks in the life cycle of the optimal asset allocation.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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