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Theory matters for financial advice!


Mayer, János; Hens, Thorsten (2013). Theory matters for financial advice! NCCR FINRISK Working Paper 866, 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.

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.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:2013
Deposited On:27 Dec 2013 13:48
Last Modified:05 Apr 2016 17:17
Series Name:NCCR FINRISK Working Paper
Number of Pages:25
Official URL:http://www.nccr-finrisk.uzh.ch/wps.php?action=query&id=866
Other Identification Number:merlin-id:8770
Permanent URL: https://doi.org/10.5167/uzh-86946

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