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Behavioral portfolio selection and optimization: an application to international stocks

Author

Listed:
  • Beatrice D. Simo-Kengne

    () (University of Johannesburg)

  • Kofi A. Ababio

    () (University of Johannesburg)

  • Jules Mba

    () (University of Johannesburg)

  • Ur Koumba

    () (University of Johannesburg)

Abstract

Abstract The behavioral approach of decision making has emerged as a diversified solution in the presence of risk and uncertainty. Using the popular cumulative prospect theory as an objective function for portfolio selection, this study implements the classical mean–variance model to compare the portfolio performance of high behavioral stocks with that of stocks with lower behavioral values. Based on a sample of 37 international stocks over the period from October 1998 to November 2017, empirical results from D-vine pair copula GARCH-GEV indicate that the portfolio of high behavioral prospect stocks outperforms the portfolio of stocks with low behavioral scores. This finding may suggest that portfolios with high behavioral values coincide with rational efficiency sets.

Suggested Citation

  • Beatrice D. Simo-Kengne & Kofi A. Ababio & Jules Mba & Ur Koumba, 2018. "Behavioral portfolio selection and optimization: an application to international stocks," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 32(3), pages 311-328, August.
  • Handle: RePEc:kap:fmktpm:v:32:y:2018:i:3:d:10.1007_s11408-018-0313-8
    DOI: 10.1007/s11408-018-0313-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Portfolio selection; Cumulative prospect theory; Pair copula;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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