The Best Behavior Portfolio Selection When Considering Habitual Consumption

Since the 20 th century,with the appearance of various financial anomalies in the market,the traditional financial theory has been greatly affected,which led to a number of new financial theories trying to explain the phenomenon of financial anomaly gradually emerging,the most typical theory is the theory of behavioral finance.Therefore,the traditional portfolio theory of financial research has become one of the most important issues in the field of behavioral finance.The traditional literature on the issue of investment and consumption usually portrays consumption as a stochastic process.The conclusion is often that consumption increases with the increase of wealth,which is contrary to reality.In fact,the spending habits of most investors are habitual.That is,investors do not pay much attention to the distribution of personal consumption.The proportion of household and personal income used for consumption is usually fixed or the consumption will be affected by inflation.But it will not change from time to time.Therefore,based on the existing theoretical results and based on behavioral finance theory,this paper starts from the habitual consumption of investors,and studies the problems of consumption and investment portfolio.First of all,when investors have a fixed lower limit of habitual consumption,the portfolio selection of investors with behavioral traits is considered.By establishing the dynamic optimization model,the explicit solution of the model is obtained by using Lagrange function after the martingale approach is transformed into a relatively easy static problem.Secondly,in the case that consumption is affected by inflation,using the same method to establish the model and find the display solution.Finally,using Monte Carlo simulation method for numerical analysis.The result shows that inflation has a less influence on investment while the change of the wealth reference point has a great impact on the investment.When investors are assumed to be loss-averse,their optimal strategy and wealth process are affected by loss-aversion coefficient.Therefore,the contribution of this paper is to give investors the habitual consumption process,and clearly give consumers the optimal proportion of asset allocation.Which is more perfect and more realistic than the traditional model.