Details
| Original language | English |
|---|---|
| Pages (from-to) | 1032-1046 |
| Number of pages | 15 |
| Journal | Journal of Banking and Finance |
| Volume | 34 |
| Issue number | 5 |
| Publication status | Published - 10 Nov 2009 |
| Externally published | Yes |
Abstract
We analyze the attractiveness of investment strategies over a variety of investment horizons from the viewpoint of an investor with preferences described by Cumulative Prospect Theory (CPT), currently the most prominent descriptive theory for decision making under uncertainty. A bootstrap technique is applied using historical return data of 1926-2008. To allow for variety in investors' preferences, we conduct several sensitivity analyses and further provide robustness checks for the results. In addition, we analyze the attractiveness of the investment strategies based on a set of experimentally elicited preference parameters. Our study reveals that strategy attractiveness substantially depends on the investment horizon. While for almost every preference parameter combination a bond strategy is preferred for the short run, stocks show an outperformance for longer horizons. Portfolio insurance turns out to be attractive for almost every investment horizon. Interestingly, we find probability weighting to be a driving factor for insurance strategies' attractiveness.
Keywords
- Behavioral finance, Cumulative Prospect Theory, Investment horizon, Investment strategy, Portfolio choice
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
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In: Journal of Banking and Finance, Vol. 34, No. 5, 10.11.2009, p. 1032-1046.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Investment horizon and the attractiveness of investment strategies
T2 - A behavioral approach
AU - Dierkes, Maik
AU - Erner, Carsten
AU - Zeisberger, Stefan
PY - 2009/11/10
Y1 - 2009/11/10
N2 - We analyze the attractiveness of investment strategies over a variety of investment horizons from the viewpoint of an investor with preferences described by Cumulative Prospect Theory (CPT), currently the most prominent descriptive theory for decision making under uncertainty. A bootstrap technique is applied using historical return data of 1926-2008. To allow for variety in investors' preferences, we conduct several sensitivity analyses and further provide robustness checks for the results. In addition, we analyze the attractiveness of the investment strategies based on a set of experimentally elicited preference parameters. Our study reveals that strategy attractiveness substantially depends on the investment horizon. While for almost every preference parameter combination a bond strategy is preferred for the short run, stocks show an outperformance for longer horizons. Portfolio insurance turns out to be attractive for almost every investment horizon. Interestingly, we find probability weighting to be a driving factor for insurance strategies' attractiveness.
AB - We analyze the attractiveness of investment strategies over a variety of investment horizons from the viewpoint of an investor with preferences described by Cumulative Prospect Theory (CPT), currently the most prominent descriptive theory for decision making under uncertainty. A bootstrap technique is applied using historical return data of 1926-2008. To allow for variety in investors' preferences, we conduct several sensitivity analyses and further provide robustness checks for the results. In addition, we analyze the attractiveness of the investment strategies based on a set of experimentally elicited preference parameters. Our study reveals that strategy attractiveness substantially depends on the investment horizon. While for almost every preference parameter combination a bond strategy is preferred for the short run, stocks show an outperformance for longer horizons. Portfolio insurance turns out to be attractive for almost every investment horizon. Interestingly, we find probability weighting to be a driving factor for insurance strategies' attractiveness.
KW - Behavioral finance
KW - Cumulative Prospect Theory
KW - Investment horizon
KW - Investment strategy
KW - Portfolio choice
UR - http://www.scopus.com/inward/record.url?scp=77649188400&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2009.11.003
DO - 10.1016/j.jbankfin.2009.11.003
M3 - Article
AN - SCOPUS:77649188400
VL - 34
SP - 1032
EP - 1046
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
SN - 0378-4266
IS - 5
ER -