We integrate appealing features of Markowitz’s mean-variance portfolio theory (MVT) and Shefrin and Statman’s behavioral portfolio theory (BPT) into a new mental accounting (MA) framework. Features of the MA framework include an MA structure of portfolios, a definition of risk as the...

We integrate appealing features of Markowitz's mean-variance portfolio theory (MVT) and Shefrin and Statman's behavioral portfolio theory (BPT) into a new mental accounting (MA) framework. Features of the MA framework include a mental accounting structure of portfolios, a definition of risk as...

While correlation is the common measure of the benefits of diversification, it is not a good measure. This is for two reasons. First, the benefits of diversification depend not only on the correlations between stock returns but also on the standard deviations of stock returns. Second,...

While correlation is the common indicator of the benefits of diversification, it is not a good indicator. This is for three reasons. First, diversifiable risk depends not only on the correlations between stock returns but also on the standard deviations of stock returns. Second, correlation does...

Correlations between the returns of U.S. stocks and international stocks were higher recently than in the past, reaching 0.86 during the 60 months ending in December 2003. Today's investors note the high correlations between U.S. and international stocks and doubt the benefits of global...