Měření averze ke ztrátě soukromého investora

Purpose of the article: This paper gives an empirical view on behaviorance of private investor who is loss averse and whether a loss aversive private investor should invest into such risky assets as equity? The main focus is on the use of robust statistical methods and prospect theory for estimation of equity indexes’ selected characteristics, mainly risk characteristics. The paper contains a detail discussion, which one risk metric for assets seems suitable for private investor who is loss averse. Scientific aim of this article: The aim of the article is a critically describe the problems related with private investor’s loss aversion behaviorance and how the concept of loss aversion should by applied into equities (or equity indices) investment. The crucial problem is how to measure loss aversion of private investor investing in equities. Methodology/methods: The primary and secondary research was applied. Selected scientific articles and other literature published with the topic of prospect theory and risk measurement are mainly used to support a critical analyse of how private investor’s loss aversion should be define and measured in the reality – in the financial/investment area. Next the primary research was done with selected equity indexes. As the representants of equity indexes were chosen not only “typical” representative as MSCI World index but mainly some derivatives of indexes which track a dividend strategy (indexes comprising stocks of companies that pay dividends). Findings: Loss aversive investor worries about any loss of value of their wealth. If these investors choose to invest in stocks they should prefer to invest in the stock indexes with down-side risk close to zero, respectively those indexes whose down-side risk is lowest among all. This down-risk should by measure with using belowtarget semivariance. A standard deviation method as a tool for measurement of risk for loss aversive investor is not so proper due the fact that large positive outcomes are treated as equally risky as large negative ones. In practice, however, positive outliers should be regarded as a bonus and not as a risk. Conclusions: A loss averse investors should some part of his/her wealth invest into equity indexes (may be 15%, max.25%). As the best equity index for a loss adverse investor was chosen Natural Monopoly Index 30 Infrastructure Global with the smallest down side risk

Taxation, Risk, and Portfolio Choice: The Treatment of Returns to Risk Under a Normative Income Tax

Many articles in the legal and economic literature claim that a pure Haig-Simons income tax cannot effectively tax investment income. This is because an investor can use leverage to gross up her investments in risky assets such that the increased gain (or loss) exactly offsets any income tax (or deduction) on the returns to risk-taking. This article argues, however, that while it is possible for an investor to make such portfolio shifts, she almost certainly will not because of the increased risk of doing so. Central to any discussion of the effects of taxation on investment risk-taking is the meaning of risk itself. The central claim of this article is that a better conception of investment risk is the risk of loss and not merely the variance of returns. Applying this notion of risk—one that is well supported in the finance literature but new to the taxation-and-risk literature—to an investor’s portfolio choice question shows that an investor will not increase her investment in risky assets by enough to offset the tax. As a result, there is an effective tax on investment risk-taking under a normative income tax

Revisiting the Home Bias Puzzle. Downside Equity Risk

Deviations from normality in financial return series have led to the development of alternative portfolio selection models. One such model is the downside risk model, whereby the investor maximizes his return given a downside risk constraint. In this paper we empirically observe the international equity allocation for the downside risk investor using 9 international markets’ returns over the last 34 years. The results are stable for various robustness checks. Investors may think globally, but instead act locally, due to greater downside risk. The results provide an alternative view of the home bias phenomenon, documented in international financial markets.Asset Pricing, Home Bias, Downside Risk, Prospect Theory

Portfolio selection models: A review and new directions

Modern Portfolio Theory (MPT) is based upon the classical Markowitz model which uses variance as a risk measure. A generalization of this approach leads to mean-risk models, in which a return distribution is characterized by the expected value of return (desired to be large) and a risk value (desired to be kept small). Portfolio choice is made by solving an optimization problem, in which the portfolio risk is minimized and a desired level of expected return is specified as a constraint. The need to penalize different undesirable aspects of the return distribution led to the proposal of alternative risk measures, notably those penalizing only the downside part (adverse) and not the upside (potential). The downside risk considerations constitute the basis of the Post Modern Portfolio Theory (PMPT). Examples of such risk measures are lower partial moments, Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR). We revisit these risk measures and the resulting mean-risk models. We discuss alternative models for portfolio selection, their choice criteria and the evolution of MPT to PMPT which incorporates: utility maximization and stochastic dominance

A Theoretical Extension of the Consumption-based CAPM Model

We extend the Consumption-based CAPM (C-CAPM) model for representative agents with different risk attitudes. We introduce the concept of expectation dependence and show that for a risk averse representative agent, it is the first-degree expectation dependence rather than the covariance that determines C-CAPM’s riskiness. We extend the assumption of risk aversion to prudence and provide a weaker dependence condition than first-degree expectation dependence to obtain the values of asset price and equity premium. Results are generalized to higher-degree risk changes and higher- order representative agents, and are linked to the equity premium puzzle.Consumption-based CAPM, Risk premium, Equity premium puzzle