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On a model of portfolio selection with benchmark

Author

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  • N Wagner

    (Technische Universität München, Fakultät für Wirtschaftswissenschaften Arcisstrasse 21)

Abstract

Evidently, the theoretical foundation of behavioural portfolio selection fundamentally differs from the concept of rational portfolio selection under uncertainty. Behavioural portfolio selection with respect to some given benchmark portfolio violates classical axioms of rationality. The paper proposes a unified behavioural model of portfolio selection, which incorporates rational portfolio selection as well as benchmarking and derives its analytical solution. In the model, the manager's utility function is based on regret theory and has two instead of one objective variable. The corresponding ‘EVC criterion’ helps to clarify controversial issues in portfolio selection and allows for testable implications.

Suggested Citation

  • N Wagner, 2002. "On a model of portfolio selection with benchmark," Journal of Asset Management, Palgrave Macmillan, vol. 3(1), pages 55-65, July.
    • Handle: RePEc:pal:assmgt:v:3:y:2002:i:1:d:10.1057_palgrave.jam.2240065
    DOI: 10.1057/palgrave.jam.2240065
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    Cited by:

    1. Citci, Sadettin Haluk & Inci, Eren, 2016. "The masquerade ball of the CEOs and the mask of excessive risk," Economic Modelling, Elsevier, vol. 58(C), pages 383-393.
    2. Palomba, Giulio & Riccetti, Luca, 2012. "Portfolio frontiers with restrictions to tracking error volatility and value at risk," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2604-2615.
    3. Li, Xuepeng & Xu, Fengmin & Jing, Kui, 2022. "Robust enhanced indexation with ESG: An empirical study in the Chinese Stock Market," Economic Modelling, Elsevier, vol. 107(C).
    4. Guo, Xu & Wong, Wing-Keung & Xu, Qunfang & Zhu, Xuehu, 2015. "Production and hedging decisions under regret aversion," Economic Modelling, Elsevier, vol. 51(C), pages 153-158.

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