Realization Utility with Reference-Dependent Preferences
By Jonathan E. Ingersoll, Lawrence J. Jin. 2013
161 citations recorded by the source corpus.
We develop a tractable model of realization utility that studies the role of reference-dependent S-shaped preferences in a dynamic investment setting with reinvestment. Our model generates both voluntarily realized gains and losses. It makes specific predictions about the volume of gains and losses, the holding periods, and the sizes of both realized and paper gains and losses that can be calibrated to a variety of statistics, including Odean's measure of the disposition effect. Our model also predicts several anomalies, including, among others, the flattening of the capital market line and a negative price for idiosyncratic risk. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
Subfields: Accounting, Finance
View Paper: https://www.semanticscholar.org/paper/dae8cb2b9ded52bbba2a9e86dca7847f322286f6
How researchers see this paper
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In Accounting
- Rik Frehen
- Roman Kräussl
- Nicholas Barberis
- Arthur Korteweg
- Patrick Verwijmeren
- Mathijs Cosemans
- Othmar Lehner
- V. Dang
In Finance
- Arthur Korteweg
- Patrick Verwijmeren
- Roman Kräussl
- Mathijs Cosemans
- Rik Frehen
- Nicholas Barberis
- Doron Avramov
- Allan G. Timmermann
Citations in the corpus
- Does it Pay to Invest in Art? A Selection-Corrected Returns Perspective (2013, background): “12 In public equities, where transaction costs are low, the Ingersoll and Jin (2013) model is subject to the criticism that investors can almost continuously reset their reference point by selling and repurchasing the same stock.”
- Psychology-based Models of Asset Prices and Trading Volume (2018, background): “Ingersoll and Jin (2013) show that, when coupled with prospect theory, such “realization utility” can generate a robust disposition effect.”
- Salience theory and stock prices: Empirical evidence (2021, background): “, Kahneman (1973)).1 Bordalo, Gennaioli, and Shleifer (2012), henceforth BGS, argue that because of these cognitive limitations, decision makers’ attention is drawn to the most unusual attributes of the options they face.”
- Reference-Dependent Preferences and the Risk-Return Trade-Off (2017, unknown): “As discussed in the introduction, it is possible that realization utility with a reference-dependent feature might also generate different risk attitudes across loss and gain regions (see, e.g., Barberis and Xiong, 2012; Ingersoll and Jin, 2013 ).”
- Looking for Someone to Blame: Delegation, Cognitive Dissonance, and the Disposition Effect (2014, unknown): “Another proposed explanation has been realization utility (Barberis and Xiong (2009, 2012), Ingersoll and Jin (2013)), where traders gain utility from the act of selling at a gain, rather than from receiving information about the gain.”