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Behavioural portfolio formation using mental accounting in emerging markets: the case of Saudi Arabia

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  • Musa Essayyad
  • Khalid Desai

Abstract

This paper aims to test whether investors in Saudi Arabia build their portfolios in a layer-by-layer form, considering them as a pyramid of assets as described by Shefrin and Statman (2000), and to investigate whether investors diversify their investments based on their aspirations. We use t-test and regression analysis to test the nine hypotheses related to investors' portfolio-building behaviour. The results show that Saudi investors are influenced by the mental accounting bias and build their portfolios as a pyramid of assets. The results also show that Saudi investors diversify their portfolio investments based on their aspirations and not efficiency.

Suggested Citation

  • Musa Essayyad & Khalid Desai, 2008. "Behavioural portfolio formation using mental accounting in emerging markets: the case of Saudi Arabia," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 1(3), pages 263-283.
  • Handle: RePEc:ids:ijmefi:v:1:y:2008:i:3:p:263-283
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