Behavioral stock portfolio optimization considering holding periods of B-stocks with short-selling. (English) Zbl 1458.91189
Summary: This study exploits the extra information provided by behavioral stocks (B-stocks) and proposes portfolio selection models that produce profitable portfolios which can outperform traditional investment benchmarks (market index, mutual funds, and exchange-traded funds). Using the embedded holding period \((T\)-day) information of a B-stock, in order to maximize the expected effect (cumulative abnormal return \(\mathrm{CAR} \geq 1\%\)), this study proposes a buy and hold strategy such that B-stocks are bought when their respective causes are spotted and held until their respective \(T\)-days are reached. In addition, in performing the back-tests the actual transaction costs are considered to represent more realistic investments. Short-selling is also considered to provide a more flexible investment such that some B-stocks are shorted when causes are spotted and wait until their respective \(T\)-days are reached to exploit the expected effect \((\mathrm{CAR} \leq - 1\%)\). The resulting portfolios are then compared to traditional benchmarks. Overall, this study addresses three issues that were not addressed by previous works on B-stocks. These issues are: (1) having portfolios that are profitable even after all transactions costs are considered; (2) identifying short-sell B-stocks for consideration of short-selling in the portfolio selection; and (3) generating portfolios that outperform traditional investment benchmarks.
MSC:
| 91G10 | Portfolio theory |
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