Behavioral Portfolio Theory

Hersh Shefrin

Santa Clara University - Leavey School of Business

Meir Statman

Santa Clara University - Department of Finance; Tilburg University

6/22/00: web retrieval--abstract only--Kathy
University of Washington
School of Business Administration
Journal of Financial and Quantitative Analysis
Vol. 35, No. 2, June 2000

Behavioral Portfolio Theory

Hersh Shefrin and Meir Statman

We develop a positive behavioral portfolio theory (BPT) and explore its implications for portfolio construction and security design. The optimal portfolios of BPT investors resemble combinations of bonds and lottery 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 portfolios. In particular, the CAPM two-fund separation does not hold in BPT. We present BPT in a single mental account version (BPT-SA) and a multiple mental account version (BPT-MA). BPT-SA investors
integrate their portfolios into a single mental account, while BPT-MA investors segregate their portfolios into several mental accounts. BPT-MA portfolios resemble layered pyramids, where layers are associated with aspirations. We explore a two-layer portfolio where the low aspiration layer is designed to avoid poverty while the high aspiration layer is designed for a shot at

JEL Classification: G11

working papers series

Not Available For Download

Date posted: August 10, 1999  

Suggested Citation

Shefrin, Hersh and Statman, Meir, Behavioral Portfolio Theory. Available at SSRN: http://ssrn.com/abstract=5947

Contact Information

Hersh M. Shefrin (Contact Author)
Santa Clara University - Leavey School of Business ( email )
Dept. of Finance
Santa Clara, CA 95053
United States
408-554-6893 (Phone)
408-554-4029 (Fax)
Meir Statman
Santa Clara University - Department of Finance ( email )
500 El Camino Real
Santa Clara, CA 95053
United States
408-554-4147 (Phone)
408-554-4029 (Fax)
Tilburg University ( email )
Feedback to SSRN

Paper statistics
Abstract Views: 6,269

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.282 seconds