TY - JOUR T1 - Evidence on Dynamic Loss Aversion from Currency Portfolios JF - The Journal of Portfolio Management SP - 60 LP - 68 DO - 10.3905/jpm.2011.38.1.060 VL - 38 IS - 1 AU - Kenneth Froot AU - John Arabadjis AU - Sonya Cates AU - Stephen Lawrence Y1 - 2011/10/31 UR - https://pm-research.com/content/38/1/60.abstract N2 - Currency investors exhibit a tendency to cut risk by pairing both longs and shorts following losses and a weaker tendency to add risk following gains. By differentiating between position-level, portfolio-level, and aggregate cross portfolio losses in currency investments, the authors demonstrate that this dynamic loss aversion spans multiple frames of reference. Losses are not compartmentalized, but rather a loss in one currency may impact trading in another. The authors also show that while the impact of a loss on subsequent trading decisions does linger, the effect declines sharply after a losing position is closed.TOPICS: Portfolio construction, interest-rate and currency swaps, risk management ER -