Abstract—With the introduction of behavioral stocks (B-stocks), investors now have an alternative profitable investment option by exploiting the positive effect (positive cumulative abnormal return CAR) of irrational behaviors to stock price movements. Currently, all work on B-stocks only consider the cause-and-effect relations that expect B-stocks to have positive CARs after some time following the spotting of their respective causes. Thus, this study finds the other side and exploits the cause-and-effect relations that expect B-stocks to have negative CARs after some time following the spotting of their respective causes. We call this short-sell B-stocks. Accordingly, this study proposes a scenario-based mixed integer program that considers the short-selling of B-stocks under the inverse version of the safety-first portfolio selection model to maximize the negative price change of B-stocks within the portfolio. The result shows that the short-sell portfolio can outperform the market portfolio significantly; this also indicates that the proposed investment strategy can be another alternative profitable investment option that investors can exploit.
Index Terms—Behavioral stocks, short-sell B-stocks, holding periods, investments, portfolio selection, short-selling
Kuo-Hwa Chang is with Chung Yuan Christian University, Department of Industrial and Systems Engineering, 200 Chung Pei Road, Chung Li District, Taoyuan City, Taiwan 32023 (e-mail: kuohwa@cycu.edu.tw).
Michael Nayat Young is with Chung Yuan Christian University, Department of Industrial and Systems Engineering, 200 Chung Pei Road, Chung Li District, Taoyuan City, Taiwan 32023. He is also with Mapúa University, 658 Muralla St., Intramuros, Manila 1002, Philippines (e-mail: michaelnayatyoung@gmail.com).
Chien-Chih Liu is with Chung Yuan Christian University, Department of Industrial and Systems Engineering, 200 Chung Pei Road, Chung Li District, Taoyuan City, Taiwan 32023 (e-mail: angelapollyontw@gmail.com).
Hao-Ping Chung is with Chung Yuan Christian University, Department of Industrial and Systems Engineering, 200 Chung Pei Road, Chung Li District, Taoyuan City, Taiwan 32023 (e-mail: ssica0611@yahoo.com.tw).
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Cite: Kuo-Hwa Chang, Michael N. Young, Chien-Chih Liu, and Hao-Ping Chung, "Behavioral Stock Portfolio Optimization through Short-Selling," International Journal of Modeling and Optimization vol. 8, no. 2, pp. 125-130, 2018.
