Human beings’ decision-making processes are generally influenced by two typical cognitive biases: representativeness heuristic bias and conservatism bias. Previous studies found that the two cognitive biases cause investors to misreact to past stock earnings. This paper argues that the two...

Portfolio selection is often faced with large noisy data sets of strongly correlated asset returns, and so is prone to unstable portfolio weights and serious estimation error. To attenuate these problems, this paper proposes a new latent factor model equipped with both a suitable robust...