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- Title
BEHAVIORAL PORTFOLIO THEORY AND BEHAVIORAL ASSET PRICING MODEL AS AN ALTERNATIVE TO STANDARD FINANCE CONCEPTS.
- Authors
Lekovic, Miljan
- Abstract
The growing gap between standard finance theory and practice has made way for the emergence of new theories and the development of new asset-pricing models. Behavioral economists have seized this opportunity to promote their ideas and thus develop behavioral finance theory, as an antithesis to standard finance theory; behavioral portfolio theory, as an antithesis to modern portfolio theory, and a behavioral asset-pricing model, as an antithesis to standard financial asset-pricing models. The paper aims to illustrate these new theoretical frameworks, given the absence of research at the national level relating to behavioral portfolio theory and the behavioral asset-pricing model. The objective is to explain the key features of behavioral portfolio theory and the behavioral asset-pricing model by means of conducting a comparative analysis of the mentioned theory and its model and standard financial concepts and models. By using a qualitative research methodology, the author concludes that, by incorporating psychological factors, behavioral portfolio theory and the behavioral asset-pricing model complement conventional financial concepts and bring finance theory closer to reality. It is, however, still too early and exaggerated to a certain extent to speak about the superiority of these new theoretical frameworks in relation to modern portfolio theory and conventional asset-pricing models, which is also the main finding of the research study.
- Subjects
BEHAVIORAL economics; HUMAN behavior models; PSYCHOLOGICAL factors; FINANCE; MODEL theory
- Publication
Economic Horizons / Ekonomski Horizonti, 2019, Vol 21, Issue 3, p255
- ISSN
1450-863X
- Publication type
Article
- DOI
10.5937/ekonhor1903263L