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Rationality of the Portfolio Investor: Behavioural Features of Formation of Expectations

Author

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  • Yury V. Eltsov

    (National Research University Higher School of Economics, Moscow 119571, Russia)

Abstract

We provide the results of massive field experiments aimed at identifying the mechanisms of investors’ decision making. We explore the way rational subjective expectations are translated into asymmetric distributed rates of return. Special emphasis is placed upon behavioural phenomena such as over- and underreaction, narrow framing, and bounded rationality. The mathematical model of investors’ expectations extrapolation based on Gram — Charlier expansion is suggested and proved empirically by retrospective investment strategies testing.

Suggested Citation

  • Yury V. Eltsov, 2013. "Rationality of the Portfolio Investor: Behavioural Features of Formation of Expectations," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 1, pages 81-94, March.
    • Handle: RePEc:fru:finjrn:130110:p:81-94
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    More about this item

    Keywords

    behavioural finance; decision making; pricing process modeling; bounded rationality; overreaction; underreaction; narrow framing;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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