EconPapers    
Economics at your fingertips  
 

When Behavioral Portfolio Theory meets Markowitz theory

Marie Pfiffelmann, Tristan Roger () and Olga Bourachnikova

Economic Modelling, 2016, vol. 53, issue C, 419-435

Abstract: The Behavioral Portfolio Theory (BPT) developed by Shefrin and Statman (2000) is often set against Markowitz's (1952) Mean Variance Theory (MVT). In this paper, we compare the asset allocations generated by BPT and MVT without restrictions. Using U.S. stock prices from the CRSP database for the 1995–2011 period, this paper is the first study that empirically determines the BPT optimal portfolio. We show that Shefrin and Statman's (2000) optimal portfolio is Mean Variance (MV) efficient in more than 70% of cases. However, our results also indicate that the BPT portfolio exhibits a high level of risk, high returns and positively skewed returns. We show that the risk aversion coefficient of the BPT portfolio is up to 10 times lower than the risk aversion degree shown by typical MV investors. Even if the asset allocations may coincide, typical MV investors will not usually select the BPT optimal portfolios. These results underline that MVT and BPT cannot be used interchangeably.

Keywords: Behavioral Portfolio Theory; Mean Variance Theory; Portfolio optimization; Decision making (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999315003375
Full text for ScienceDirect subscribers only

Related works:
Working Paper: When Behavioral Portfolio Theory Meets Markowitz Theory (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:53:y:2016:i:c:p:419-435

DOI: 10.1016/j.econmod.2015.10.041

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-19
Handle: RePEc:eee:ecmode:v:53:y:2016:i:c:p:419-435