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      A behavioral approach to efficient portfolio formation

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      Author(s)
      Muradoglu, Y. G.
      Altay-Salih, A.
      Mercan, M.
      Date
      2005
      Source Title
      The Journal of Behavioral Finance
      Print ISSN
      1542-7560
      Electronic ISSN
      1542-7579
      Publisher
      Routledge
      Volume
      6
      Issue
      4
      Pages
      202 - 212
      Language
      English
      Type
      Article
      Item Usage Stats
      168
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      221
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      Abstract
      This paper investigates the portfolio performance of subjective forecasts given in different forms. In constructing the efficient frontier, we base the expectation formation processes on subjective forecasts and human behavior, rather than on past prices. We construct the efficient portfolios first, using point, interval, and probabilistic forecasts. Next, we compare their performance to portfolios constructed using the standard time series data approach. Subjective forecasts are provided by actual portfolio managers who forecast stock prices on a real-time basis. Our first contribution is to show that the portfolio performance of subjective forecasts is superior to those of standard time series modeling. Our second contribution lies in the fact that we use experts as forecasters, professional fund managers with substantive expertise. Our third contribution is that we investigate the expert subjects' forecasts using point, interval, and probabilistic forecasts, which renders our findings robust to the task format.
      Permalink
      http://hdl.handle.net/11693/48607
      Published Version (Please cite this version)
      https://doi.org/10.1207/s15427579jpfm0604_4
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