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Benchmarking of investment funds is obviously an important topic as investment funds typically have to disclose their investment profile. Standard portfolio theory, however, is not necessarily a good guide to the profiling of investment funds. Indeed, it is well known that the standard mean-variance approach presumes that individuals have preferences of the expected utility type with a utility of wealth that is concave. It has been highlighted (amongst others Kahneman and Tversky (1979, 1992), Prelec (1998) and Starmer (2000)) that those preferences are not in line with empirical evidence.
According to experimental evidence the utility function is asymmetric on gains and losses. Moreover, individuals seem to transform the so-called objective probability distribution. The...
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