A Behavioral Explanation of the Asset Allocation Puzzle
Journal
Investment Management and Financial Innovations
ISSN
1810-4967
ISSN-Digital
1812-9358
Type
journal article
Date Issued
2011-12-01
Author(s)
Abstract
This paper combines a behavioral reward-risk model based on prospect theory with multiple investment accounts to explain the asset allocation puzzle, that is, the observation that investors violate the two-fund separation property of
optimal mean-variance allocations. In a empirical analysis with U.S. data, the authors show that investors with preference according to the behavioral reward-risk model and multiple investment accounts, invest a higher proportion into bonds and large cap stocks as their risk tolerance diminishes, consistently with the empirical findings.
optimal mean-variance allocations. In a empirical analysis with U.S. data, the authors show that investors with preference according to the behavioral reward-risk model and multiple investment accounts, invest a higher proportion into bonds and large cap stocks as their risk tolerance diminishes, consistently with the empirical findings.
Language
English
Keywords
portfolio selection
asset allocation puzzle
prospect theory
mental accounting
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Quantitative Economic Methods
Refereed
Yes
Publisher
BusinessPerspective
Publisher place
Sumy
Volume
8
Number
4
Start page
36
End page
44
Pages
9
Subject(s)
Eprints ID
210002