Download or read book How Investors Face Financial Risk Loss Aversion and Wealth Allocation written by Erick W. Rengifo and published by . This book was released on 2008 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study how the wealth-allocation decisions and the loss aversion of non-professional investors change subject to behavioral factors. The optimal wealth assignment between risky and risk-free assets results within a VaR portfolio model, where risk is individually assessed according to an extended prospect-theory framework. We show how the past performance and the portfolio evaluation frequency impact investor behavior. Myopic loss aversion holds at different evaluation frequencies. One year is the optimal frequency at which, under practical constraints, risky holdings are maximized. Previous research using standard VaR-significance levels may underestimate the loss aversion of individual investors.