Portfolio selection with mental accounts: An equilibrium model with endogenous risk aversion

Gordon J. Alexander, Alexandre M. Baptista, Shu Yan

Research output: Contribution to journalArticle

Abstract

In Das et al. (2010), an agent divides his or her wealth among mental accounts that have different goals and optimal portfolios. While the moments of the distribution of asset returns are exogenous in their normative model, they are endogenous in our corresponding positive model. We obtain the following results. First, there are multiple equilibria that we parameterize by the implied risk aversion coefficient of the agent's aggregate portfolio. Second, equilibrium asset prices and the composition of optimal portfolios within accounts depend on this coefficient. Third, altering the goal of any given account affects the composition of each portfolio.

Original languageEnglish (US)
Article number105599
JournalJournal of Banking and Finance
Volume110
DOIs
StatePublished - Jan 2020

Fingerprint

Endogenous risk
Coefficients
Portfolio selection
Optimal portfolio
Mental accounts
Risk aversion
Wealth
Asset prices
Asset returns
Multiple equilibria

Keywords

  • Behavioral finance
  • Endogenous risk aversion
  • Equilibrium
  • Mean-variance model
  • Mental accounts
  • Portfolio selection

Cite this

Portfolio selection with mental accounts : An equilibrium model with endogenous risk aversion. / Alexander, Gordon J.; Baptista, Alexandre M.; Yan, Shu.

In: Journal of Banking and Finance, Vol. 110, 105599, 01.2020.

Research output: Contribution to journalArticle

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