Diversified behavioral portfolio as an alternative to Modern Portfolio Theory

Yeny E. Rodríguez, Juan M. Gómez and Javier Contreras

The North American Journal of Economics and Finance, 2021, vol. 58, issue C

Abstract: The traditional mean–variance approach has been complemented by alternative theories that use risk measures different from standard deviation of returns or involve additional distributional features of returns like skewness and kurtosis. We propose a portfolio choice model that combines different distributional characteristics of the returns in the decision-making making process, considering preferences of investors which are modeled as non-statistical uncertainties of investors using fuzzy theory. We use 20 stocks of the S&P500 from January 2013 to December 2017. We assess the obtained portfolios’ performance, and the diversified behavioral portfolios outperform than the mean–variance portfolio. This methodological proposal can be seen as a strong managerial tool to make investment portfolio decisions.

Keywords: Behavioral risk; Portfolio management; Risk tolerance; Fuzzy optimization; Diversification (search for similar items in EconPapers)
JEL-codes: G11 G41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:58:y:2021:i:c:s1062940821001273

DOI: 10.1016/j.najef.2021.101508

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