A New Behavioral Model for Portfolio Selection Using the Half-Full/Half-Empty Approach

23 Pages Posted: 4 Dec 2023

See all articles by Francesco Cesarone

Francesco Cesarone

University of Rome III - Department of Business Studies

Massimiliano Corradini

University of Rome III - Department of Business Studies

Lorenzo Lampariello

University of Rome III - Department of Business Studies

Jessica Riccioni

University of Rome III - Department of Business Studies

Date Written: November 27, 2023

Abstract

We focus on a behavioral model, that has been recently proposed in the literature, whose rational can be traced back to the Half-Full/Half-Empty glass metaphor. More precisely, we generalize the Half-Full/Half-Empty approach to the context of positive and negative lotteries and give financial and behavioral interpretations of the Half-Full/Half-Empty parameters. We develop a portfolio selection model based on the Half-Full/Half-Empty strategy, resulting in a nonconvex optimization problem, which, nonetheless, is proven to be equivalent to an alternative Mixed-Integer Linear Programming formulation. By means of the ensuing empirical analysis, based on three real-world datasets, the Half-Full/Half-Empty model is shown to be very versatile by appropriately varying its parameters, and to provide portfolios displaying promising performances in terms of risk and profitability, compared with Prospect Theory, risk minimization approaches and Equally-Weighted portfolios.

Keywords: Portfolio optimization, Behavioral models, Prospect theory, Performance analysis

JEL Classification: C61, G02, G11

Suggested Citation

Cesarone, Francesco and Corradini, Massimiliano and Lampariello, Lorenzo and Riccioni, Jessica, A New Behavioral Model for Portfolio Selection Using the Half-Full/Half-Empty Approach (November 27, 2023). Available at SSRN: https://ssrn.com/abstract=4645211 or http://dx.doi.org/10.2139/ssrn.4645211

Francesco Cesarone (Contact Author)

University of Rome III - Department of Business Studies ( email )

Via Silvio D'Amico 77
Rome, Rome 00145
Italy

HOME PAGE: http://www.francescocesarone.com/

Massimiliano Corradini

University of Rome III - Department of Business Studies ( email )

Department of Business Studies
Via Silvio D'Amico 77
Roma, RM 00145
Italy

Lorenzo Lampariello

University of Rome III - Department of Business Studies ( email )

Jessica Riccioni

University of Rome III - Department of Business Studies ( email )

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