TY - JOUR
T1 - Portfolio selection with mental accounts and estimation risk
AU - Alexander, Gordon J.
AU - Baptista, Alexandre M.
AU - Yan, Shu
PY - 2017/3/1
Y1 - 2017/3/1
N2 - In Das, Markowitz, Scheid, and Statman (2010), an investor divides his or her wealth among mental accounts with short selling being allowed. For each account, there is a unique goal and optimal portfolio. Our paper complements theirs by considering estimation risk. We theoretically characterize the existence and composition of optimal portfolios within accounts. Based on simulated and empirical data, there is a wide range of account goals for which such portfolios notably outperform those selected with the mean-variance model for plausible risk aversion coefficients. When short selling is disallowed, the outperformance still typically holds but to a considerably lesser extent.
AB - In Das, Markowitz, Scheid, and Statman (2010), an investor divides his or her wealth among mental accounts with short selling being allowed. For each account, there is a unique goal and optimal portfolio. Our paper complements theirs by considering estimation risk. We theoretically characterize the existence and composition of optimal portfolios within accounts. Based on simulated and empirical data, there is a wide range of account goals for which such portfolios notably outperform those selected with the mean-variance model for plausible risk aversion coefficients. When short selling is disallowed, the outperformance still typically holds but to a considerably lesser extent.
KW - Behavioral finance
KW - Estimation risk
KW - Mental accounts
KW - Portfolio selection
UR - http://www.scopus.com/inward/record.url?scp=85017115200&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85017115200&partnerID=8YFLogxK
U2 - 10.1016/j.jempfin.2016.07.012
DO - 10.1016/j.jempfin.2016.07.012
M3 - Article
AN - SCOPUS:85017115200
SN - 0927-5398
VL - 41
SP - 161
EP - 186
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
ER -