The Portfolio Choice in Emergent Markets a Rational or a Behavioral Decision: a Cognitive Answer

Abstract

The purpose of this study is to explore the relationship between the rational and the behavioral portfolio theories, two theories that describes the decision making process on the domain of portfolio choice, under investors' perception. This will offer a more realistic answer that describes the investors' decision on term of portfolio choice. Our sample contains 30 Tunisian investors who trade at the Tunisian stock exchange (BVMT). We introduce an approach based on cognitive mapping with a series of interviews. We combine both concepts that belong to the mean-variance and the behavioral approach and we explore the interactions between them. We introduce some new notions such as the zone of communication between the two cited theories and the variables of connection. We demonstrate that investors use the mean-variance theory of portfolio choice but they are affected by their cognitive biases and emotions when making their portfolio choice decision.

Keywords: Mean-variance portfolio Choice, Behavioral Portfolio Choice, cognitive maps, areas of communication, concepts of connection.