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Asset ManagementA Systematic Approach to Factor Investing$
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Andrew Ang

Print publication date: 2014

Print ISBN-13: 9780199959327

Published to Oxford Scholarship Online: August 2014

DOI: 10.1093/acprof:oso/9780199959327.001.0001

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Chapter:
(p.35) Chapter 2 Preferences
Source:
Asset Management
Author(s):

Andrew Ang

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199959327.003.0002

Investors generally dislike the risk of losses during bad times. Optimal portfolio choice trades off these risks with the potential of returns. While mean-variance utility treats gains and losses symmetrically, other models of preferences allow investors to seek safety first, to weight the pain of losses more heavily than the benefit of gains, and to have their utility depend on their past consumption (habit) and the returns or actions of other investors.

Keywords:   utility, risk aversion, certainty equivalent, mean-variance, indifference curve, capital allocation line, CRRA, habit, loss aversion, short volatility

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