André Lucas

Portfolio insurance strategies based on options typically treat the investment in the risky asset, e.g., stock, as fixed. We show in a mean/downside-risk framework that such a strategy is inefficient. Using at the money put options, expected returns can be increased by more than 250 basis points without taking on more risk. Gains can become arbitrarily large when one uses options with extremely high strike prices. This is due to a serious caveat to the mean/downside-risk framework that is typically adopted in the literature by substituting downside-risk measures for standard risk measures such as the variance of returns. These pathologic results vanish when one maximizes an appropriately chosen HARA utility function. In this framework, fixing the holding of the risky asset in advance leads to efficiency losses that vary between 250 and 650 basis points depending on the degree of risk aversion.

The disposition effect postulates that individuals hold losing investments too long. However, many investors eventually sell at a loss. This paper integrates prospect theory, reference point adaptation and cognitive-experiential self-theory to provide more insight on such ...

This paper provides an empirical description of the relationship between the trading system operated by a stock exchange and the trading behaviour of heterogeneous investors who use the exchange. The recent introduction of SETS in the London Stock Exchange provides an ...