Regret aversion in portfolio management (Excel)

Regret aversion or fear of missing out is one of the most common behavioural biases investors are exposed to. How to understand the impact of regret aversion on optimal portfolio construction and asset allocation and how to model regret? Today we are investigating the simple model of regret aversion that allows to easily and intuitively integrate it into modern portfolio theory and construct optimal portfolios for regret-avoiding investors.
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[@NEDLeducation]

You can find the spreadsheets for this video and some additional materials here: drive.google.com/drive/folders/1sP40IW0p0w5IETCgo464uhDFfdyR6rh7
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[@milind1857]

You are God's gift to human kind...

[@NEDLeducation]

Thanks very much for such kind words and stay tuned for more content!

[@andresdehoyos6159]

Thank you! as simple as that.

[@myasinkilic]

you're so sympathetic bro

[@eleconomistadivulgador9327]

More videos on empirical behavioral finance. It´s the best combination of excel+pedagogical and financial skills. Thanks and
Congrats

[@austinliu667]

Really interesting idea!! Thanks for all the great videos.

[@antonyturner2446]

Hi Sava, once again thanks for a great video. One thing that I don’t understand is why you calculate regret for each asset as the std deviation of the daily regret value. I would think you would be interested in minimizing the average regret, rather than the volatility of regret.

[@NEDLeducation]

Hi Antony, and thanks for the excellent question! Mathematically it turns out that if you minimise expected regret, you are simply maximising expected return which is unfortunately trivial. This is why regret is generally modeled as a "risk-like" measure.

[@antonyturner2446]

I don’t agree that volatility of regret is useful to minimize. My own regret would be determined by total cumulative (or average) regret. I’m really not worried by the volatility of regret, as that does not seem to be of any relevance to my state of regret.

[@marf982b]

Awesome

[@saucysquare]

Love your content sir❤️❤️

[@gyanamayeepanigrahi7995]

Dear sava,
Can you pls make some video on the predictive model of delisting of shares or bankruptcy

[@NEDLeducation]

Hi Gyanamayee, and thanks for the suggestion! I have got a video on probit and logit models in the context of consumer loan defaults, but they can be just as easily applied to commercial defaults: ruclips.net/video/Lmq7DHUAzoU/видео.html

[@ErdiBayramm]

Hi Sava, first of all I am grateful to you for this video. I'd like to ask, why the solver choose the stock with high regret value while minimizing portfolio regret value. For example, AAPL has 24,63% regret value, but solver gives weight of 25,97% in portfolio. What is your opinion on this matter?

[@historparanaodormir]

Hello, Great video. In your experience which volatility model Do you consider the best to use in intraday analysis?