Review of Finance Vol. 12 No. 3 2008
Equity Portfolio Diversification
Abstract
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.
- DOI
- 10.1093/rof/rfn005
- Volume
- 12
- Issue
- 3
- Pages
- 433-463
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref