Markowitz Mean-Variance Portfolio Selection and Optimization under a Behavioral Spectacle: New Empirical Evidence

Jules Clement Mba, Kofi Agyarko Ababio and Samuel Kwaku Agyei
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Kofi Agyarko Ababio: Department of Statistical Sciences, Kumasi Technical University, P.O. Box 854, Kumasi AK039, Ashanti Region, Ghana
Samuel Kwaku Agyei: Department of Finance, School of Business, University of Cape Coast, Sekondi Road, Cape Coast CC145, Ghana

IJFS, 2022, vol. 10, issue 2, 1-16

Abstract: This paper investigates the robustness of the conventional mean-variance (MV) optimization model by making two adjustments within the MV formulation. First, the portfolio selection based on a behavioral decision-making theory that encapsulates the MV statistics and investors psychology. The second aspect involves capturing the portfolio asset dependence structure through copula. Using the behavioral MV (BMV) and the copula behavioral MV (CBMV), the results show that stocks with lower behavioral scores outperform counterpart portfolios with higher behavioral scores. On the other hand, in the Forex market, the reverse is observed for the BMV approach, while the CBMV remains consistent.

Keywords: mean-variance; dependence structure; portfolio optimization; cumulative prospect theory; differential evolution (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2022
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