A new behavioral model for portfolio selection using the Half‐Full/Half‐Empty approach

We introduce a new behavioral model, the Half-Full/Half-Empty model, in decision-making under risk problems. We implement an empirical analysis based on the comparison with the classic behavioral model of Prospect Theory and we validate the use of these approaches in portfolio selection by proposing three traditional portfolio models as benchmarks (minimum-variance portfolio, mean absolute deviation portfolio and portfolio equally weighted). The aim of this paper is to incorporate investors’ perception of risk into the choices of optimal portfolios. Out-of-sample analysis of four stock indexes is proposed to demonstrate the superiority of behavioral portfolio selection models over traditional ones.