magicskyfairy
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- Jan 18, 2010
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The below is the wiki on BPT, and it’s consistent with the layer stuff that I remember reading in the CFA curriculum. How the hell it relates to sale price limits is beyond me
Behavioral portfolio theory (BPT) was published by Shefrin and Statman.[1] This theory essentially tries to provide a contrast to the fact that the ultimate motivation for investors is the maximization of the value of their portfolios. It suggests that investors have varied aims and create an investment portfolio that meets a broad range of goals.[2] It does not follow the same principles as the Capital Asset Pricing Model, Modern Portfolio Theory and the arbitrage pricing theory. A behavioral portfolio bears a strong resemblance to a pyramid with distinct layers. Each layer has well defined goals. The base layer is devised in a way that it is meant to prevent financial disaster, whereas, the upper layer is devised to attempt to maximize returns, an attempt to provide a shot at becoming rich.
BPT is a descriptive theory based on the SP/A theory of Lola Lopes (1987), and closely related to Roy’s safety-first criterion. The theory is described as a single account version: BPT-SA, which is very closely related to the SP/A theory.
In this multiple account version, investors can have fragmented portfolios, just as we observe among investors. They even propose in their initial article a Cobb–Douglas utility function that shows how money is allocated in the twomental accounts.
Behavioral portfolio theory (BPT) was published by Shefrin and Statman.[1] This theory essentially tries to provide a contrast to the fact that the ultimate motivation for investors is the maximization of the value of their portfolios. It suggests that investors have varied aims and create an investment portfolio that meets a broad range of goals.[2] It does not follow the same principles as the Capital Asset Pricing Model, Modern Portfolio Theory and the arbitrage pricing theory. A behavioral portfolio bears a strong resemblance to a pyramid with distinct layers. Each layer has well defined goals. The base layer is devised in a way that it is meant to prevent financial disaster, whereas, the upper layer is devised to attempt to maximize returns, an attempt to provide a shot at becoming rich.
BPT is a descriptive theory based on the SP/A theory of Lola Lopes (1987), and closely related to Roy’s safety-first criterion. The theory is described as a single account version: BPT-SA, which is very closely related to the SP/A theory.
In this multiple account version, investors can have fragmented portfolios, just as we observe among investors. They even propose in their initial article a Cobb–Douglas utility function that shows how money is allocated in the twomental accounts.