A robust behavioral portfolio selection: model with investor attitudes and biases

What is it about?

This study develops a behavioral portfolio selection model that uses a robust estimator for expected returns in order to produce portfolios with less need to change over consecutive periods. We also consider investor attitudes toward risk through spectral risk measure as well as investor expectations on future returns by means of the Black–Litterman model, and finally, our model includes a varying risk aversion depending on investor behavioral biases and his latest realized return.

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Why is it important?

In the context of behavioral portfolio selection, this study develops a mathematical model including three main features of portfolio selection: expected return, risk measure, and investor attitude toward risk (also known as risk tolerance, and risk aversion). In this study a survey on investor biases and attitudes has been conducted market data of Tehran Stock Exchange has been used to evaluate the developed model.

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