The Relative Importance of Factors that Influence the Asset Allocation Decisions of Individual Investors

2014 ◽  
Author(s):  
Annie Claire Zhang ◽  
Ben Jacobsen ◽  
Ben R. Marshall
Keyword(s):  
Asset Allocation ◽  
Individual Investors ◽  
Relative Importance ◽  
Allocation Decisions

scholarly journals The Asset Allocation Decisions Of Individual Investors

2011 ◽  
Vol 4 (8) ◽  
Author(s):  
Marta Alvarez ◽  
Javier Rodriguez
Keyword(s):  
Stock Market ◽  
Survey Data ◽  
Asset Allocation ◽  
Individual Investors ◽  
General State ◽  
Market Conditions ◽  
Allocation Decisions

The asset allocation decisions of individual investors are evaluated using survey data. By applying a methodology based on attribution returns we are able to assess the forecasting ability of a group of well-informed individual investors. We find that, if this group of investors follows their survey answers with investment actions, they add value to their overall wealth by actively managing their portfolios. These investors demonstrate good forecasting ability by effectively shifting their portfolios allocations. Finally, using two different time partitions, based on the general state of the stock market, we find that this group of investors managed their portfolios better during poor market conditions.

scholarly journals Quantitative model for impact of behavioral biases on asset allocation decisions: a case study of investors in UAE

2021 ◽  
Author(s):  
Ashutosh Pradhan
Keyword(s):  
Asset Allocation ◽  
Cognitive Biases ◽  
Quantitative Model ◽  
Individual Investors ◽  
Research Approach ◽  
Behavioral Biases ◽  
Cognitive Limitations ◽  
The World ◽  
The Impact ◽  
Allocation Decisions

AbstractIndividuals are expected to be rational and follow the approach prescribed under different traditional finance theories while constructing portfolios. In reality, studies from different parts of the world show that individuals do not act rationally due to cognitive limitations and influence of emotions and feelings. Additionally, in quite a few countries, religion plays an important role in decision-making. As a result, individuals make suboptimal decisions, like holding poorly diversified portfolios, excessive or minimal trading, and taking excessive or too little risk with their portfolios. The analysis of impact of behavioral biases and religiosity has not been done in the context of individual investors living in UAE, which this paper addresses. A survey questionnaire was administered to Arab nationals living in UAE. Data of 129 individuals were analyzed. The findings showed that these investors were influenced by emotional and cognitive biases, had good knowledge of religiosity, & placed them as important. This behavior is consistent with investor behavior observed in the rest of the world. Subsequent to these empirical findings, the paper has developed a quantitative model to predict the impact of behavioral biases and religiosity on asset allocation decisions. The research approach used for developing the quantitative model can be replicated by researchers from across the world tailored to their own regions.

Portfolio Choice Over the Life Cycle: A Survey

2020 ◽  
Vol 12 (1) ◽  
pp. 277-304
Author(s):  
Francisco Gomes
Keyword(s):  
Life Cycle ◽  
Portfolio Choice ◽  
Asset Allocation ◽  
Borrowing Constraints ◽  
Future Research ◽  
Individual Investors ◽  
Critical Survey ◽  
Household Heterogeneity ◽  
Allocation Decisions

Life-cycle portfolio choice models capture the role of human capital, housing, borrowing constraints, background risk, and several other crucial ingredients for determining the savings and investment decisions of households. Over the last two decades, this literature has provided us with multiple insights regarding the asset allocation decisions of individual investors. This article provides a critical survey of this research and suggests directions for future research, namely incorporating additional forms of household heterogeneity.

A Stochastic Approach to Risk Management and Decision Making in Defined Benefit Pension Schemes

2003 ◽  
Vol 9 (3) ◽  
pp. 493-586 ◽  
Author(s):  
S. Haberman ◽  
C. Day ◽  
D. Fogarty ◽  
M. Z. Khorasanee ◽  
M. McWhirter ◽  
...  
Keyword(s):  
Decision Making ◽  
Performance Measures ◽  
Asset Allocation ◽  
Stochastic Approach ◽  
Free Variable ◽  
Defined Benefit ◽  
Contribution Rate ◽  
And Performance ◽  
Allocation Decisions ◽  
Made In

ABSTRACTThe trustees and sponsors of defined benefit schemes rely on the advice of the Scheme Actuary to make important decisions concerning the funding of the scheme, the investment of its assets, and the use of surplus assets to improve benefits. These decisions have to be made in the face of considerable uncertainty about financial and demographic factors that will affect the future experience of the scheme and its success in meeting various objectives.The traditional actuarial valuation combined with actuarial judgement has played an important role in guiding decision making; but we argue that stochastic methods can add value in certain crucial areas, in particular the financial risk management of defined benefit schemes. Rather than dealing with risk by incorporating margins in the valuation basis, a stochastic approach allows the actuary to evaluate specific and quantifiable risk and performance measures for alternative funding and investment strategies.This paper recommends a framework that, when combined with a suitable stochastic model, measures the risks inherent in contribution rate and asset allocation decisions, allowing better decisions to be made. In doing this, we suggest and apply various risk and performance measures that may be thought appropriate, although our intention is to illustrate their use rather than prescribe them as objective standards. The framework provides the means to explore the trade-offs involved in possible contribution and asset allocation decisions, and points to decision strategies expected to give improved outcomes for the same level of risk. A feature of the approach that marks it out from current asset/liability techniques is that it examines the funding and investment decisions together. It does not derive a contribution rate in the traditional way, but leaves this as free variable, in the same way that the investment decision is taken to be a free variable. Another distinctive feature of our framework is that it is based on projection rather than on valuation, involving stochastic simulation of the experience of the scheme over a time horizon reflecting the concerns of the trustees and the sponsoring employer.The paper provides a case study (based on a model final salary pension scheme) showing the advantages of the framework, and goes on to explain how the results may practically be communicated to trustees and scheme sponsors.

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