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A robust behavioral portfolio selection: model with investor attitudes and biases

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This study develops a behavioral portfolio selection model that uses a robust estimator for expected returns in order to produce portfolios with less need to change over consecutive periods. We also consider investor attitudes toward risk through spectral risk measure as well as investor expectations on future returns by means of the Black–Litterman model, and finally, our model includes a varying risk aversion depending on investor behavioral biases and his latest realized return. In order to evaluate the proposed model and make comparisons possible, we conducted a survey on investor biases and attitudes along with market data of Tehran Stock Exchange. The results reveal that although our model is not mean–variance efficient, it recommends portfolios that are robust, well diversified, and have less utility loss compared to a famous behavioral portfolio model.

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  1. 1.

    The argument on subadditivity can refer to assets as well. Nevertheless, this argument for assets has been studied thoroughly in conventional finance. Hence, we propose no contribution on that. However, as mental accounts are an exclusive feature of behavioral portfolio models, we discuss the subadditivity argument on them.

  2. 2.

    It should be mentioned that finding investors with basic investment knowledge and willingness to participate in academic surveys is difficult in TSE, therefore, we tried to keep as much respondents as possible in the final calculations by holding meetings in person with at most three of them in each session; each meeting took about 45 min–1 h, which means we had about 115 hours in meetings from January to August of 2015.


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Correspondence to Akbar Esfahanipour.

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Momen, O., Esfahanipour, A. & Seifi, A. A robust behavioral portfolio selection: model with investor attitudes and biases. Oper Res Int J 20, 427–446 (2020).

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  • Behavioral portfolio selection
  • Robust estimator
  • Spectral risk measure
  • Behavioral biases
  • Black–Litterman
  • Operational research

Mathematics Subject Classification

  • 91G10
  • 90C90
  • 62G35
  • 91B30
  • 62J05