Prospect theory and liquidation decisions

被引:52
作者
Kyle, Albert S. [1 ]
Ou-Yang, Hui
Xiong, Wei
机构
[1] Duke Univ, Fuqua Sch Business, Durham, NC 27708 USA
[2] Princeton Univ, Bendheim Ctr Finance, Dept Econ, Princeton, NJ 08540 USA
关键词
prospect theory; disposition effect; break-even effect; liquidation decisions;
D O I
10.1016/j.jet.2005.02.006
中图分类号
F [经济];
学科分类号
02 ;
摘要
We solve a liquidation problem for an agent with preferences consistent with the prospect theory of Kahneman and Tversky [Econornetrica 47 (1979) 263-291]. We find that the agent is willing to hold a risky project with a relatively inferior Sharpe ratio if the project is currently making losses. and intends to liquidate it when it breaks even. On the other hand. the agent may liquidate a project with a relatively superior Sharpe ratio if its current profits rise or drop to the break-even point. Our results capture the spirit of the disposition effect and the break-even effect documented in empirical and experimental studies. (c) 2005 Elsevier Inc. All rights reserved.
引用
收藏
页码:273 / 288
页数:16
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