Title: Behavioural portfolio formation using mental accounting in emerging markets: the case of Saudi Arabia

Authors: Musa Essayyad, Khalid Desai

Addresses: College of Industrial Management, King Fahd University of Petroleum and Minerals (KFUPM), Dhahran 31261, Saudi Arabia. ' College of Industrial Management, King Fahd University of Petroleum and Minerals (KFUPM), Dhahran 31261, Saudi Arabia

Abstract: This paper aims to test whether investors in Saudi Arabia build their portfolios in a layer-by-layer form, considering them as a pyramid of assets as described by Shefrin and Statman (2000), and to investigate whether investors diversify their investments based on their aspirations. We use t-test and regression analysis to test the nine hypotheses related to investors| portfolio-building behaviour. The results show that Saudi investors are influenced by the mental accounting bias and build their portfolios as a pyramid of assets. The results also show that Saudi investors diversify their portfolio investments based on their aspirations and not efficiency.

Keywords: assets pyramiding; behavioural finance; behavioural portfolio formation; emerging markets; portfolio investment; mental accounting; modern portfolio theory; portfolio diversification; Saudi Arabia investments; Saudi mutual funds.

DOI: 10.1504/IJMEF.2008.020635

International Journal of Monetary Economics and Finance, 2008 Vol.1 No.3, pp.263 - 283

Published online: 06 Oct 2008 *

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