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Maslow Portfolio Selection for Individuals with Low Financial Sustainability

Author

Listed:
  • Zongxin Li

    (School of Mathematics and Statistics, Xi’an Jiaotong University, Xi’an 710049, China)

  • Xinge Li

    (School of Mathematics and Statistics, Xi’an Jiaotong University, Xi’an 710049, China)

  • Yongchang Hui

    (School of Mathematics and Statistics, Xi’an Jiaotong University, Xi’an 710049, China)

  • Wing-Keung Wong

    (Department of Finance, Fintech Center, and Big Data Research Center, Asia University, Taichung City 413, Taiwan
    Department of Economics and Finance, Hang Seng Management College, Hong Kong, China
    Department of Economics, Lingnan University, Hong Kong, China)

Abstract

In this paper, we extend Maslow’s need hierarchy theory and the two-level optimization approach by developing the framework of the Maslow portfolio selection model (MPSM) by solving the two optimization problems to meet the need of individuals with low financial sustainability who prefer to satisfy their lower-level (safety) need first, and, thereafter, look for higher-level (self-actualization) need to maximize the optimal return. We illustrate our proposed model with real American stock data from the S&P index and conduct the out-of-sample analysis to compare the performance of our proposed Variance-CVaR (conditional value-at-risk) MPSM with both traditional mean-variance and mean-CVaR models. Our empirical analysis shows that our proposed Variance-CVaR MPSM is not only sustainable, but also obtains the best out-of-sample performance in the sense that the optimal portfolios obtained by using our proposed Variance-CVaR MPSM obtain the highest cumulative returns in the out-of-sample period among the models used in our paper. We note that our proposed model is not only suitable to individuals with low financial sustainability, but also suitable to institutions or investors with high financial sustainability.

Suggested Citation

  • Zongxin Li & Xinge Li & Yongchang Hui & Wing-Keung Wong, 2018. "Maslow Portfolio Selection for Individuals with Low Financial Sustainability," Sustainability, MDPI, vol. 10(4), pages 1-11, April.
  • Handle: RePEc:gam:jsusta:v:10:y:2018:i:4:p:1128-:d:140258
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