Benchmarks in Aggregate Household Portfolios

58 Pages Posted: 10 May 2007

See all articles by Pascal St-Amour

Pascal St-Amour

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Swiss Finance Institute

Date Written: December 19, 2006


Reference-dependent preference models assume that agents derive utility from deviations of consumption from benchmark levels, rather than from consumption levels. These references can be either backward-looking (as explicit in the Habit literature) or forward-looking (as implicitly suggested by Prospect Theory). For both cases, we specify and estimate a fully structural multi-variate Brownian system in optimal consumption, portfolio and wealth using aggregate household financial and real estate wealth data. Our results reveal that references are (i) strongly relevant, (ii) state-dependent, and (iii) that the data is more consistent with the backward than the forward-looking reference model.

Keywords: Portfolio choice, Reference-dependent utility, Habit, Prospect, Estimation

JEL Classification: G11, G12

Suggested Citation

St-Amour, Pascal, Benchmarks in Aggregate Household Portfolios (December 19, 2006). Swiss Finance Institute Research Paper No. 07-09. Available at SSRN: or

Pascal St-Amour (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

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