A Behavioral Explanation of the Asset Allocation Puzzle

Item Type Journal paper
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.
Authors De Giorgi, Enrico
Projects De Giorgi, Enrico & Audrino, Francesco (2010) Applying Recent Developments in Computational Statistics to Behavioral Asset Pricing and Portfolio Selection [applied research project]
Journal or Publication Title Investment Management and Financial Innovations
Language English
Keywords portfolio selection, asset allocation puzzle, prospect theory, mental accounting
Subjects economics
HSG Classification contribution to scientific community
HSG Profile Area SEPS - Quantitative Economic Methods
Refereed Yes
Date 1 December 2011
Publisher BusinessPerspective
Place of Publication Sumy
Volume 8
Number 4
Page Range 36-44
Number of Pages 9
ISSN 1810-4967
ISSN-Digital 1812-9358
Depositing User Prof. Ph.D Enrico Giovanni De Giorgi
Date Deposited 29 Feb 2012 20:32
Last Modified 23 Aug 2016 11:12
URI: https://www.alexandria.unisg.ch/publications/210002


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De Giorgi, Enrico (2011) A Behavioral Explanation of the Asset Allocation Puzzle. Investment Management and Financial Innovations, 8 (4). 36-44. ISSN 1810-4967


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