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

Author

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  • Jules Clément Mba

    (School of Economics, College of Business and Economics, University of Johannesburg, P.O. Box 524, Auckland Park, Johannesburg 2006, South Africa)

  • 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)

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.

Suggested Citation

  • Jules Clément Mba & Kofi Agyarko Ababio & Samuel Kwaku Agyei, 2022. "Markowitz Mean-Variance Portfolio Selection and Optimization under a Behavioral Spectacle: New Empirical Evidence," IJFS, MDPI, vol. 10(2), pages 1-16, April.
    • Handle: RePEc:gam:jijfss:v:10:y:2022:i:2:p:28-:d:800312
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    References listed on IDEAS

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