Behavioral Allocation Theory
Posted: 15 Jun 2022
Date Written: May 30, 2022
This paper takes a step towards managing the psychographics in portfolio management to try to predict behavioral decisions in a client's risk tolerance. Is it possible to manage multiple portfolios of clients with a symmetric range of investing philosophies? Also, would it be beneficial to both the client and the hedge fund manager if the client was risk-seeking in a way to "explore" different investing philosophies, in contrast to only executing well within one framework of a particular investing strategy? Lastly, would it be beneficial for the hedge fund manager to have two clients with two opposing investing philosophies so that if there were a dearth of shares in the market due to low volatility, one client could long the same shares that the other client would want to short? This paper explores the in-between areas of such "don't worry about it" topics.
Keywords: investing, investing philosophy, portfolio management, portfolio, markowitz, sharpe, stanford, pepperdine, asset allocation, security selection, security analysis, portfolio theory, behavior
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