Chapter

Behavioral Portfolios: Hope for Riches and Protection from Poverty

Meir Statman

in Pension Design and Structure

Published in print July 2004 | ISBN: 9780199273393
Published online January 2005 | e-ISBN: 9780191601675 | DOI: http://dx.doi.org/10.1093/0199273391.003.0004
Behavioral Portfolios: Hope for Riches and Protection from Poverty

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This chapter argues that the behavioural portfolio theory offers a good description of investor behaviour and a basis for good policy prescriptions. The theory states that investors view with portfolios not as a whole, but as distinct layers in a pyramid of assets where layers are associated with specific goals, and where attitudes towards risk vary across layers. Unlike the mean-variance theory which offers portfolio descriptions that investors do not follow, the behavioural portfolio theory offers prescription of pyramid portfolios that are closer to reality.

Keywords: behavioural portfolio theory; investor behaviour; investment; mean-variance portfolio theory; public policy

Chapter.  4830 words.  Illustrated.

Subjects: Financial Markets

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