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Equity portfolio diversification

Version 2 2024-06-06, 11:17
Version 1 2017-03-31, 13:28
journal contribution
posted on 2024-06-06, 11:17 authored by WN Goetzmann, A Kumar
This study shows that U.S. individual investors hold under-diversified portfolios, where the level of under-diversification is greater among younger, low-income, less-educated, and less-sophisticated investors. The level of under-diversification is also correlated with investment choices that are consistent with over-confidence, trend-following behavior, and local bias. Furthermore, investors who over-weight stocks with higher volatility and higher skewness are less diversified. In contrast, there is little evidence that portfolio size or transaction costs constrains diversification. Under-diversification is costly to most investors, but a small subset of investors under-diversify because of superior information.

History

Journal

Review of finance

Volume

12

Pagination

433-463

Location

Oxford, Eng.

ISSN

1572-3097

eISSN

1573-692X

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2008, The Author

Publisher

Oxford University Press