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Behavioral Portfolio Management

Journal of Behavioral Finance & Economics, Forthcoming

37 Pages Posted: 2 Feb 2013 Last revised: 3 Feb 2015

C. Thomas Howard

University of Denver - Daniels College of Business; AthenaInvest

Date Written: December 31, 2014

Abstract

Behavioral Portfolio Management (BPM) is presented as a superior way to make investment decisions. Underlying BPM is the dynamic market interplay between Emotional Crowds and Behavioral Data Investors. BPM’s first Basic Principle is that Emotional Crowds dominate the determination of both prices and volatility, with fundamentals playing a small role. The second Basic Principle is that Behavioral Data Investors earn superior returns. I present the evidence supporting these first two Principles. The third Basic Principle is that investment risk is the chance of underperformance. It is important to distinguish between emotions and investment risk so that good decisions are made. In order to achieve the best results using BPM, investment professionals should redirect their own emotions, harness the market’s emotions, and mitigate the impact of client emotions on their portfolio.

Keywords: Behavioral Science, Behavioral Finance, behavioral investing, Modern Portfolio Theory, emotional catering, portfolio management

JEL Classification: G12, G15, C82

Suggested Citation

Howard, C. Thomas, Behavioral Portfolio Management (December 31, 2014). Journal of Behavioral Finance & Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2210032 or http://dx.doi.org/10.2139/ssrn.2210032

C. Thomas Howard (Contact Author)

University of Denver - Daniels College of Business ( email )

2101 S. University Blvd.
Denver, CO 80208
United States

AthenaInvest ( email )

5340 S Quebec St
Suite 365N
Greenwood Village, CO 80111
United States

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