Portfolio Analysis: Behavioral Finance and Portfolio Theory

This report presents a comprehensive analysis of a SGD 1,000,000 portfolio invested in nine leading Singaporean companies. The study begins with an introduction to portfolio construction and investment aims, focusing on long-term retirement goals. It explores asset allocation using both behavioral finance and portfolio theory. The behavioral approach examines biases such as overconfidence and familiarity bias and their impact on portfolio performance. The report then applies portfolio theory, analyzing historical prices, correlation matrices, and Sharpe ratios to determine optimal asset allocation. Diversification strategies across assets, asset classes, and domestic/international markets are discussed. The performance of both the nine-asset portfolio and a five-asset portfolio is evaluated, including discussions on Markowitz's equation and market risk. Finally, the report assesses portfolio performance in relation to retirement goals and references active and passive management strategies.