Debiased Expert Opinions in Continuous Time Asset Allocation: Supplementary Material
9 Pages Posted: 21 May 2018 Last revised: 24 May 2018
Date Written: May 7, 2018
This paper examines the effect of biased expert opinions on asset allocation. 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 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: Suggested Citation