Portfolio selection with mental accounts and estimation risk

Gordon J. Alexander, Alexandre M. Baptista, Shu Yan

Research output: Contribution to journalArticlepeer-review

22 Scopus citations


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.

Original languageEnglish (US)
Pages (from-to)161-186
Number of pages26
JournalJournal of Empirical Finance
StatePublished - Mar 1 2017


  • Behavioral finance
  • Estimation risk
  • Mental accounts
  • Portfolio selection


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