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A Behavioral Approach to the Asset Allocation Puzzle

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  • Siebenmorgen, Niklas

    ()
    (Graduiertenkolleg Finanz-/Gütermärkte)

  • Weber, Martin

    ()
    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

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    Abstract

    This paper describes a study, in which we examine the diversification behavior of financial advisors. The Asset Allocation Puzzle describes the phenomenon that popular financial advice tends to be inconsistent with the mutual-fund separation theorem. While Canner, Mankiw and Weil (1997) try to explain the puzzle by relaxing the rigid assumptions of the CAPM, we follow another idea: Learning from Benartzi and Thaler (2000) about investors' naive diversification strategies, we find evidence that the Asset Allocation Puzzle can be explained by a new behavioral portfolio model. To verify these findings we distributed questionnaires among several investment consultants who gave us information about their market expectations and three asset allocation recommendations. Their recommendation strategies indeed seem to be reflected by the behavioral portfolio model. Finally, we examine losses of efficiency for their recommendations.

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    Bibliographic Info

    Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 00-46.

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    Length: 44 pages
    Date of creation: 18 Oct 2000
    Date of revision:
    Handle: RePEc:xrs:sfbmaa:00-46

    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    Cited by:
    1. Oussama Chakroun & Georges Dionne & Amélie Dugas-Sampara, 2006. "Empirical Evaluation of Investor Rationality in the Asset Allocation Puzzle," Cahiers de recherche 0635, CIRPEE.

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