Resumen de Incorporating regret aversion into emerging market portfolios

Dejan Živkov

• This paper examines how incorporating regret aversion affects portfolio construction and performance in emerging stock markets. Using daily data from 2015–2025, the paper builds multivariate six-asset portfolios for Central and Eastern Europe (CEEC), East Asia, and Latin America, alongside a G7 benchmark. A regret-minimising portfolio is compared with traditional minimum-variance and maximum-Sharpe portfolios across pre-crisis and crisis periods. Results show that regret-averse portfolios are more diversified and place greater emphasis on low-correlation assets, reducing the likelihood of extreme underperformance relative to the best-performing asset. Emerging markets exhibit higher regret than developed markets, with the Latin American portfolios showing the largest regret levels. Notably, the CEEC portfolio consistently demonstrates the strongest performance, delivering the lowest regret and favourable risk-return outcomes in both subsamples. Robustness checks, including bootstrapping, variance-equality tests, and varying regret preferences, confirm the stability of the regret-minimising approach and highlight its practical relevance for behaviourally sensitive investors.