Portfolio theory is based on the assumptions raised by Harry Markowitz in his article entitled “Portfolio selection”. Since this time, many researchers have tried to modify the mean-variance model but most of these trials were not successful. A new approach to portfolio theory was provided by the behavioral portfolio approach of Shefrin and Statman. The idea of the paper is to modify classical (Markowitz) and alternative (Tarczynski) models using behavioral goals. This means that Markowitz’s and fundamental approaches will be broadened. To fulfill both the classical theory of portfolio and behavioral models, multiple-criteria models will be used first and additional constraints will be applied taking into account behavioral factors second.
Data / Methods
Classical portfolio mean-variance, fundamental and behavioral models will be used in this research. Multiple-criteria programming methods will be used to choose the optimal (compromise) solution. The obtained models will be compared with classical and fundamental ones to observe differences both in the structure of the portfolios and in the final portfolio parameters (rates of return and risk). An ex-post analysis will simulate the purchase of portfolio components at the end of 2016 and the sale of them at the end of 2017 and 2018. In the paper we used two sources of data: Notoria Serwis and Warsaw Stock Exchange. The first data set refers to financial and economic information and indices for stock companies. The second data source provides stock prices.
Results / expected results
It is expected that the inclusion of behavioral approach in building portfolios gives investors the possibilities of constructing portfolios that permit realization of goals other than the maximization of profits. At the same time, portfolios will be built maintaining optimization rules. It will be interesting to see what the ex-post results of the analyzed portfolios look like using a long horizon.