Research

Working papers

• Loss Aversion with Portfolio Choice(with Jun Liu and Kai Li).
  • This paper studies optimal portfolio choice under the loss aversion utility proposed in Tversky and Kahneman (1992). The loss aversion utility imposes lower penalty for large losses than the risk aversion utility functions. As a result, it tends to generate large risky positions and sometimes unbounded optimal portfolios, especially when asset returns are highly skewed (either positive or negative). Loss averse investors may hold assets with a zero risk premium and hold a positive amount of assets with a negative risk premium. Loss aversion can affect the optimal portfolio only when the reference point is sufficiently high, a case that is less studied in the literature, and the loss aversion utility becomes the standard HARA utility when the reference point is low.
  • Draft Article

Research in Progress

• Yield Spread Analysis(with Jun Liu and Jun Pan).
  • Investigating the relationship between short rate and yield spread. Q: Can yield spread increase with short rate?
  • Tmp Slides