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Theory Matters for Financial Advice!

Author

Listed:
  • Thorsten HENS

    (University of Zurich and Swiss Finance Institute)

  • János MAYER

    (University of Zurich)

Abstract

We show that the optimal asset allocation for an investor depends crucially on the theory with which the investor is modeled. For the same market data and the same client data different theories lead to different portfolios. The market data we consider is standard asset allocation data. The client data is determined by a standard risk profiling question and the theories we apply are mean-variance analysis, expected utility analysis and cumulative prospect theory.

Suggested Citation

  • Thorsten HENS & János MAYER, 2014. "Theory Matters for Financial Advice!," Swiss Finance Institute Research Paper Series 14-22, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1422
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    File URL: http://ssrn.com/abstract=2417188
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    More about this item

    Keywords

    Cumulative Prospect Theory; Expected Utility Analysis; Mean Variance Analysis;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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