Debiased Expert Forecasts in Continuous Time Asset Allocation

43 Pages Posted: 22 Sep 2015 Last revised: 23 Dec 2019

See all articles by Mark Davis

Mark Davis

Imperial College London

Sebastien Lleo

NEOMA Business School

Date Written: December 14, 2019


This paper examines the effect of biased expert opinions on asset allocations. Expert opinions, such as brokerage research and analyst views, are an essential component of the asset management sector and an important research topic. However, the effect of behavioral biases on expert opinions is generally ignored. We find that biases have a significant impact on portfolios, explaining nearly half of the effect of expert opinions and up to 70% of excess risk-taking in our implementation. To address the impact of behavioral biases on expert opinions, we propose an integrated behavioral continuous-time portfolio selection model which we solve in closed form. This model recommends general principles to identify and reduce the impact of five main behavioral biases. The model concludes with a new personal fractional Kelly decomposition to account for the effect of opinions on the optimal asset allocation.

Keywords: Behavioral Finance; Black-Litterman; Expert Opinions; Kalman Filter; Portfolio Selection; Stochastic Control

JEL Classification: C61; G11; G41

Suggested Citation

Davis, Mark and Lleo, Sebastien, Debiased Expert Forecasts in Continuous Time Asset Allocation (December 14, 2019). Available at SSRN: or

Mark Davis

Imperial College London ( email )

South Kensington Campus
London SW7 2AZ, SW7 2AZ
United Kingdom
02075948486 (Phone)


Sebastien Lleo (Contact Author)

NEOMA Business School ( email )


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