Behavioral portfolio selection and optimization: an application to international stocks

Beatrice D. Simo-Kengne; Kofi A. Ababio; Jules Mba; Ur Koumba

doi:10.1007/s11408-018-0313-8

Behavioral portfolio selection and optimization: an application to international stocks

Beatrice D. Simo-Kengne, Kofi A. Ababio, Jules Mba, Ur Koumba

School of Economics

University of Johannesburg

Research output: Contribution to journal › Article › peer-review

12 Citations (Scopus)

Abstract

The behavioral approach of decision making has emerged as a diversified solution in the presence of risk and uncertainty. Using the popular cumulative prospect theory as an objective function for portfolio selection, this study implements the classical mean–variance model to compare the portfolio performance of high behavioral stocks with that of stocks with lower behavioral values. Based on a sample of 37 international stocks over the period from October 1998 to November 2017, empirical results from D-vine pair copula GARCH-GEV indicate that the portfolio of high behavioral prospect stocks outperforms the portfolio of stocks with low behavioral scores. This finding may suggest that portfolios with high behavioral values coincide with rational efficiency sets.

Original language	English
Pages (from-to)	311-328
Number of pages	18
Journal	Financial Markets and Portfolio Management
Volume	32
Issue number	3
DOIs	https://doi.org/10.1007/s11408-018-0313-8
Publication status	Published - 1 Aug 2018

Keywords

Cumulative prospect theory
Pair copula
Portfolio selection

ASJC Scopus subject areas

Accounting
Finance

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10.1007/s11408-018-0313-8

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abstract = "The behavioral approach of decision making has emerged as a diversified solution in the presence of risk and uncertainty. Using the popular cumulative prospect theory as an objective function for portfolio selection, this study implements the classical mean–variance model to compare the portfolio performance of high behavioral stocks with that of stocks with lower behavioral values. Based on a sample of 37 international stocks over the period from October 1998 to November 2017, empirical results from D-vine pair copula GARCH-GEV indicate that the portfolio of high behavioral prospect stocks outperforms the portfolio of stocks with low behavioral scores. This finding may suggest that portfolios with high behavioral values coincide with rational efficiency sets.",

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AU - Koumba, Ur

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AB - The behavioral approach of decision making has emerged as a diversified solution in the presence of risk and uncertainty. Using the popular cumulative prospect theory as an objective function for portfolio selection, this study implements the classical mean–variance model to compare the portfolio performance of high behavioral stocks with that of stocks with lower behavioral values. Based on a sample of 37 international stocks over the period from October 1998 to November 2017, empirical results from D-vine pair copula GARCH-GEV indicate that the portfolio of high behavioral prospect stocks outperforms the portfolio of stocks with low behavioral scores. This finding may suggest that portfolios with high behavioral values coincide with rational efficiency sets.

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Behavioral portfolio selection and optimization: an application to international stocks

Abstract

Keywords

ASJC Scopus subject areas

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