Behavioral Portfolio Theory

  title={Behavioral Portfolio Theory},
  author={Hersh Shefrin and Meir Statman},
  journal={Journal of Financial and Quantitative Analysis},
  pages={127 - 151}
Abstract We develop a positive behavioral portfolio theory (BPT) and explore its implications for portfolio constrution and security design. The optimal portfolios of BPT investors resemble combinations of bonds and lotterly tickets consistent with Friedman and Savage's (1948) observation. We compare the BPT efficient frontier with the mean-variance efficient frontier and show that, in general, the two frontiers do not coincide. Optimal BPT portfolios are also different from optimal CAPM… 

When Behavioral Portfolio Theory Meets Markowitz Theory

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