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).
[PDF]
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.
