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

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.