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Financial Markets and Portfolio Management

, Volume 32, Issue 3, pp 311–328 | Cite as

Behavioral portfolio selection and optimization: an application to international stocks

  • Beatrice D. Simo-KengneEmail author
  • Kofi A. Ababio
  • Jules Mba
  • Ur Koumba
Article
  • 179 Downloads

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.

Keywords

Portfolio selection Cumulative prospect theory Pair copula 

JEL Classification

C14 G11 G15 

Notes

Acknowledgements

The authors are grateful to anonymous reviewers for their valuable comments and suggestions, which led to significant improvement in the presentation and quality of this paper.

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Copyright information

© Swiss Society for Financial Market Research 2018

Authors and Affiliations

  • Beatrice D. Simo-Kengne
    • 1
    Email author
  • Kofi A. Ababio
    • 1
  • Jules Mba
    • 2
  • Ur Koumba
    • 2
  1. 1.Department of Economics and EconometricsUniversity of JohannesburgJohannesburgSouth Africa
  2. 2.Department of Pure and Applied MathematicsUniversity of JohannesburgJohannesburgSouth Africa

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