We relax assumptions on individual risk preference, and set two theoretical rules for portfolio choices: either minimize or maximize risk, for any return. Risk is modeled by four alternative formulas. We empirically test these rules by observing N=690 individuals (Caucasians, bank customers and...

This paper offers a theoretical generalization of the mean-variance theory (MVT) by integrating the 'expected returns/risk' rule with variables that measure emotions. We validate its accuracy using a psycho-physiological experiment with a sample of 645 individuals who were asked to take...

The paper presents a general theoretical framework to include in the portfolio optimization model the moments of the returns distribution up to a generic order N. The proposed approach is a generalization of the standard mean-variance model. The higher order moments are introduced in the...

This paper analyzes the empirical risk tolerance of individuals. Rare empirical evidence shows the role of personal behavior in both propensity toward financial risk and risk aversion. By using a test which mimics the financial decision process in a laboratory setting for 445 individuals, we...

We focus on robust Bayesian estimation of the systematic risk of an asset in presence of outlying points. We assume that the returns follow independent normal distributions with a product partition structure on the parameters of interest. A Bayesian decision theoretical approach is used to...

The aim of financial institutions and regulators is to find an effective way to measure the risk profile of different segments of investors. Both economists and psychologists developed several methodologies to elicit and assess individual risk attitude, but these are not perfect and show several...