An Improved Generalized Disappointment Modle And Its Application In Portfolio And Asset Pricing

Traditional portfolio and asset pricing theory adopt the concept ofhomogeneous economy which originated from neoclassical economics, assumingthe investors and their investment decisions are completely rational. However,rationality is not the only reason driving the human behavior but also other fact orsaffecting, such as subjective preferences and so on. With different measurement ofasset return and risk, there can exist differentiated portfolio for investors, and assetcan be priced differently with distinct pricing model. Investors holds assets ofvarious type and risk, and related risk bring losses to investors, for the reason ofwhich investors carry out necessary analysis and assessment of asset risk, and adoptrelative strategy consider with investors’ objective and preference with less losses.Asset pricing model is the very formulation that reflects the relationship betweenasset risk and return in the situation of equilibrium market. Therefore going deepinto and comprehending current advanced theories of portfolio and asset pricing,based on which developing relative theories according the real feeling of investorsand real situation of market, have great significance both theoretically andpractically.First, this paper make summative analysis of current theories of risk preference,risk measure, portfolio management and asset pricing, based on which this paperanalysis the shortcomings and insufficiency of the former theories. Then this paperput forward an improved generalized disappointment model, in the improved modeloriginal subject’s target return reference point is changed from fixed expectedreturn to a generalized reference point, which is more flexible. In the meantimeimproved generalized disappointment model adopts linear piecewise utility functioninstead of traditional utility function, which makes the improved generalizeddisappointment model reflecting multiple risk feeling of investors.Second, based on the improved generalized disappointment model, this paperintroduces two kind of new portfolio models. One kind of the portfolio models setthe improved generalized disappointment model as target function, and can reflectinvestors’ multiple risk attitude more comprehensively with more satifying portolio plan. The other kind of the portfolio models set improved generalizeddisappointment model as constraint which controls the skewness of portfolio return.Compared with current skewness controlling method in portfolio model, the methodadopt in this paper can offer more chances to get excess return with the sameinvestment target satisficed.Third, this paper deduces new asset pricing model with the portfolio modelbased on improved generalized disappointment model. Also this paper deduces anew pricing model with multiple reference points and analyzes the modelempirically. In the empirical research this paper focuses on the time varyingcharacteristics of beta in asset pricing model in order to analyze different assetpricing factors’ time varying feature with multiple risk preference.Finally, this paper expands the asset pricing model based on improvedgeneralized diasppointment model. The expanded asset pricing model containsmore asset pricing factors. Also this paper introduce liquidity risk pricing factors into the expanded pricing model and analyzes the new pricing model empirically. Andthe liquidity risk pricing factors’ time varying characteristics is analyzes, the resultsshows that the related improvement of asset pricing model in this paper is relevantand feasible.