Chapter 1. Financial Entropy from an Asset Management View – A Comparative Empirical Analysis

$39.50

G. Cziraki, PhD
Institute of Finance and Accounting, University of Sopron, Sopron, Hungary

Part of the book: Advances in Business and Management. Volume 20

Abstract

This chapter seeks to demonstrate the self-care mechanisms for the individual and society that the present capitalist economic system offers as an affordable solution. Social care systems can draw inspiration from what we are discussing, just as private people can use our findings to their advantage. This chapter aims to bring order to a complex system of investment decision-making that can then be used as a decision-support tool to help all concerned thrive. The chapter proves that a portfolio based on nature’s entropy is self-sustaining, since the criteria taken into account in its design give it the same system properties as the other systems that constitute our world. The universal conception of systems theory allows for interdisciplinary transformation. Using a pattern similar to the ordering of nature, the chapter would like to demonstrate the inherent self-sustaining power of this pattern within asset management. The chapter reports on an empirical survey covering 984 investment portfolios and 1148 investment elements and concentrates on three main research issues: investor decision-making, diversification mismatches, and recommendations for sustainable asset management. Based on the methodology, 6-6 investment portfolios per individual were constructed. The portfolios sought diversification and return divergences in the short term of a semester (three months) and a long term of a 10-year interval. The key questions of the research focus on when, why, and what: When is the winning formula really the winning formula? Why is the winning formula – by how much and for how long? What is the explanation for the winning formula and what strategies make it sustainable? Interesting conclusions can be drawn from the research by contrasting the long- and short-term primary results of behavioral finance. The demonstrated sustainability-based portfolio management can serve as a guideline for the development of individual and institutional actors in financial culture. Raising financial awareness and self-management to a higher level needs to be coupled with a behavioral understanding of utility, which is also illuminated by the behavioral and outcome focus of the current chapter.

Keywords: behavioral finance, financial culture, portfolio management, selfsufficiency, sustainable wealth management


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