Behavioral Finance: Biases, Mean–Variance Returns, and Risk Premiums

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CFA Institute Conference Proceedings Quarterly
June 2007 | Vol. 24 | No. 2 | 8 pages
Source: CFA Institute
Hersh Shefrin

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Abstract

Behavioral finance examines the biases that investors (individual and professional) incorporate in their investment decision-making process. These biases lead to inefficiencies in market pricing that are reflected in behavioral mean–variance portfolios. For an individual security, its risk premium reflects the extent to which its return co-varies with the return of a risky behavioral mean–variance portfolio.

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Topics
Portfolio Management
|
Behavioral Finance
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