Collective mental accounting: an integrated behavioural portfolio selection model for multiple mental accounts

Omid Momen, Akbar Esfahanipour, Abbas Seifi
  • Quantitative Finance, August 2018, Taylor & Francis
  • DOI: 10.1080/14697688.2018.1489138

An integrated mathematical model for behavioural portfolio selection with multiple mental accounts

What is it about?

We propose a behavioural portfolio selection model called collective mental accounting (CMA), which integrates all mental sub-portfolios (mental accounts) in one mathematical model.

Why is it important?

This study contributes to the literature of behavioural portfolio selection in three ways: 1) Our model can determine the proportions of wealth allocated to each mental sub-portfolio with and without input from the investor. 2) Unlike other mental accounting models (MA), in CMA it is possible to define constraints on total asset holdings such as short-selling, and cardinality constraints. 3) In order to make our model more tractable and mathematically elegant, we obtain a semi-definite programming representation of the model.

Perspectives

Dr Akbar Esfahanipour
Amirkabir University of Technology

Introduction of this model as an integrated model widens the possibilities for more extensions of behavioural portfolio selection models. These extensions may include defining several different measures of risk, allowing the investor to be conservative in one sub-portfolio and speculative in another one, imposing different constraints on different sub-portfolios, and extending the dimensions of the behavioral portfolio to include more practical conditions.

Read Publication

http://dx.doi.org/10.1080/14697688.2018.1489138

The following have contributed to this page: Dr Akbar Esfahanipour and Abbas Seifi