Behavioral portfolio selection and optimization: an application to international stocks |
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Authors: | Beatrice D Simo-Kengne Kofi A Ababio Jules Mba Ur Koumba |
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Institution: | 1.Department of Economics and Econometrics,University of Johannesburg,Johannesburg,South Africa;2.Department of Pure and Applied Mathematics,University of Johannesburg,Johannesburg,South Africa |
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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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