Markowitz Mean-Variance Portfolio Selection and Optimization under a Behavioral Spectacle: New Empirical Evidence

Jules Clément Mba; Kofi Agyarko Ababio; Samuel Kwaku Agyei

doi:10.3390/ijfs10020028

Markowitz Mean-Variance Portfolio Selection and Optimization under a Behavioral Spectacle: New Empirical Evidence

Jules Clément Mba, Kofi Agyarko Ababio, Samuel Kwaku Agyei

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

12 Citations (Scopus)

Abstract

This paper investigates the robustness of the conventional mean-variance (MV) optimization model by making two adjustments within the MV formulation. First, the portfolio selection based on a behavioral decision-making theory that encapsulates the MV statistics and investors psychology. The second aspect involves capturing the portfolio asset dependence structure through copula. Using the behavioral MV (BMV) and the copula behavioral MV (CBMV), the results show that stocks with lower behavioral scores outperform counterpart portfolios with higher behavioral scores. On the other hand, in the Forex market, the reverse is observed for the BMV approach, while the CBMV remains consistent.

Original language	English
Article number	28
Journal	International Journal of Financial Studies
Volume	10
Issue number	2
DOIs	https://doi.org/10.3390/ijfs10020028
Publication status	Published - Jun 2022
Externally published	Yes

Keywords

cumulative prospect theory
dependence structure
differential evolution
mean-variance
portfolio optimization

ASJC Scopus subject areas

Finance

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10.3390/ijfs10020028

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title = "Markowitz Mean-Variance Portfolio Selection and Optimization under a Behavioral Spectacle: New Empirical Evidence",

abstract = "This paper investigates the robustness of the conventional mean-variance (MV) optimization model by making two adjustments within the MV formulation. First, the portfolio selection based on a behavioral decision-making theory that encapsulates the MV statistics and investors psychology. The second aspect involves capturing the portfolio asset dependence structure through copula. Using the behavioral MV (BMV) and the copula behavioral MV (CBMV), the results show that stocks with lower behavioral scores outperform counterpart portfolios with higher behavioral scores. On the other hand, in the Forex market, the reverse is observed for the BMV approach, while the CBMV remains consistent.",

keywords = "cumulative prospect theory, dependence structure, differential evolution, mean-variance, portfolio optimization",

author = "Mba, {Jules Cl{\'e}ment} and Ababio, {Kofi Agyarko} and Agyei, {Samuel Kwaku}",

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AU - Mba, Jules Clément

AU - Ababio, Kofi Agyarko

AU - Agyei, Samuel Kwaku

PY - 2022/6

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N2 - This paper investigates the robustness of the conventional mean-variance (MV) optimization model by making two adjustments within the MV formulation. First, the portfolio selection based on a behavioral decision-making theory that encapsulates the MV statistics and investors psychology. The second aspect involves capturing the portfolio asset dependence structure through copula. Using the behavioral MV (BMV) and the copula behavioral MV (CBMV), the results show that stocks with lower behavioral scores outperform counterpart portfolios with higher behavioral scores. On the other hand, in the Forex market, the reverse is observed for the BMV approach, while the CBMV remains consistent.

AB - This paper investigates the robustness of the conventional mean-variance (MV) optimization model by making two adjustments within the MV formulation. First, the portfolio selection based on a behavioral decision-making theory that encapsulates the MV statistics and investors psychology. The second aspect involves capturing the portfolio asset dependence structure through copula. Using the behavioral MV (BMV) and the copula behavioral MV (CBMV), the results show that stocks with lower behavioral scores outperform counterpart portfolios with higher behavioral scores. On the other hand, in the Forex market, the reverse is observed for the BMV approach, while the CBMV remains consistent.

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KW - dependence structure

KW - differential evolution

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KW - portfolio optimization

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Markowitz Mean-Variance Portfolio Selection and Optimization under a Behavioral Spectacle: New Empirical Evidence

Abstract

Keywords

ASJC Scopus subject areas

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