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General Information
Prof. Adrian Olaru
University Politehnica of Bucharest, Romania
I'm happy to take on the position of editor in chief of IJMO. It's a journal that shows promise of becoming a recognized journal in the area of modelling and optimization. I'll work together with the editors to help it progress.
IJMO 2016 Vol.6(4): 219-224 ISSN: 2010-3697
DOI: 10.7763/IJMO.2016.V6.530

Portfolio Selection Problem Considering Behavioral Stocks under Holding Periods

Kuo-Hwa Chang, Michael N. Young, and Wu Kang Lin
Abstract—The main objective of any investment is to earn but usually it’s a long shot. In stock investments there are too much variables and unknowns that it’s a challenge to make a sound decision. Any reliable information would be of great help to investors’ portfolios. This study, introduces a possible solution for the information shortage by considering behavioral stocks (B-stocks). B-stocks are stocks that are positively affected by the collective irrational behaviors of investors. This led us to study the operational definitions (OD) of irrational behaviors and exploit the information such as the cause-effect patterns, time-to-effect, and the likelihood of the effect to occur. We consider the behavioral stock portfolio optimization problem (BSPO) wherein the causes of disposition effect and over-reaction B-stocks are spotted and are consequently bought and held according to the respective time-to-effect of each B-stock. With the likelihood of the effect to occur, the one-dimensional (SP/A) weighting function can be expanded into a two-dimensional (SP/A & likelihood of effect) weightings function which is embedded to a scenario-based mixed integer program to solve the BSPO. The result shows that the portfolio can outperform the market significantly and that a possible new generic investment procedure can be exploited.

Index Terms—Behavioral stocks, portfolio optimization problem, operation research, weighting functions.

Kuo-Hwa Chang, Michael Nayat Young, Wu Kang Lin are with the Department of Industrial and Systems Engineering in Chung Yuan Christian University, Taiwan (e-mail: kuohwa@cycu.edu.tw, michaelnayatyoung@gmail.com, g10374037@cycu.edu.tw).


Cite:Kuo-Hwa Chang, Michael N. Young, and Wu Kang Lin, "Portfolio Selection Problem Considering Behavioral Stocks under Holding Periods," International Journal of Modeling and Optimization vol. 6, no. 4, pp. 219-224, 2016.

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