Portfolio optimization with behavioural preferences and investor memory

In this paper, we investigate the performance of behavioural portfolio strategies. We incorporate short-term and long-term memory investor, thus recasting choice process in a dynamic setting. evaluate out-of-sample investor relation to both naïve who invests an equally weighted rational maximises expected mean-variance utility. report number findings. First, from utility perspective, neither nor CPT achieves risk-adjusted return or certainty equivalent that significantly outperforms investor. Second, investors. Third, typically displays highly concentrated, lottery-like asset allocations, low turnover stable allocations. Fourth, addition investor's into increases diversification turnover, leading improved investment performance. Finally, by allocating more weight positively skewed assets increasing concentration, probability weighting function has impact than on Our results are robust reference return, estimation sample size, estimates, constraints.