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Research On Investment Decision-making Of Individuals In Defined Contribution Pension Plan

Posted on:2012-11-11Degree:MasterType:Thesis
Country:ChinaCandidate:C WangFull Text:PDF
GTID:2189330335454004Subject:Quantitative Economics
Abstract/Summary:PDF Full Text Request
DC (Defined Contribution Plan) is the main theme of annuity in China. DC allows people make investment with the capital in their accounts. When the employee gets to the retired age, retirement saving is paid by the base and profit in the account. In another word, the retirement saving is the function of the total contribution and the profit of investment. Therefore, employee affords the risk of capital market. Also, how to invest with the capital in the account directly impacts the level of pension when retiring. In reality, employee with DC plan tends to compare with each other. That means, if one employee's investment portfolio performs worse than his co-workers, he may feel regretful with his previous investment decision. Therefore, he may re-allocate the assets referring to his co-workers portfolio. This behavior is inconsistent with the hypothesis of rational investor.Expectation theory is the core theory of Behavioral Finance. The value function and weight function are aligned with the mentality and behavior in real investment decision. In this thesis, some certain hypothesis is created based on expectation theory. On top of the value function, investment decision model reflecting the psychology of the investor and more consistent with the real investment behavior is established by applying some relevant conclusions in expectation theory to some traditional models of investment choice. Some specific research includes:(1) Comprehend the major concept of expectation theory and summarize its basic standpoints and potential challenges;(2) Combine the value function with variance model, establish target function of investor, research the characteristics of the reference-based investment choice by emulation and point out that the investor invests on risky assets in lower percent in case of existing reference.(3) Combine the value function with the pure risk-aversion utility function and research on the multi-stage choice problem. Via mathematical deduction, prove that in case of having multiple opportunities of choice the investor with reference in his mind tends to change his investment direction in his account, that is reset his asset allocation, comparing with normal risk-aversion investors.
Keywords/Search Tags:DC annuity plan, expectation theory, value function, investment decision
PDF Full Text Request
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