The DOI matches its Crossref record; 3 of the 3 references it cites were found in a registry or an index.
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.
Overview
Integrity signals
Registry
Cites
Statistics
Verification
Claims the paper makes
Claims other papers make about this one
Each is checked against this paper’s own text: does it say what the citing paper says it does?
In the citing paper
“Moreover, a number of studies has documented a positive link between financial literacy and portfolio diversification: highly literate investors tend to manage their risks significantly better than the group of low literate individuals (e.g., Calvet et al. 2007;Goetzmann and Kumar 2008;Guiso and Jappelli 2008;von Gaudecker 2015;Clark et al. 2015).”
From Financial literacy, financial advice, and financial behavior (2017) · cites this paper as Goetzmann and Kumar 2008
Citations
Cites
Availability: A heuristic for judging frequency and probability
Tversky, A., & Kahneman, D. (1973) · Cognitive Psychology · doi:10.1016/0010-0285(73)90033-9 · Cited by 9,984 · cited 1×
“First, investors could ignore correlations (e.g., Kroll et al., 1988; Kroll and Levy, 1992) if they adopt the availability heuristics (Tversky and Kahneman, 1973) or follow price trends (e.g., Odean, 1999; Dhar and Kumar, 2001).”
Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors
Barber, B. M., & Odean, T. (2000) · The Journal of Finance · doi:10.1111/0022-1082.00226 · Cited by 3,955
Odean, T. (1999) · American Economic Review · doi:10.1257/aer.89.5.1279 · Cited by 2,247
Flagged first, then by citations
Research works printed but not linked: 47
- Agnew, 2003, Portfolio Choice and Trading in a Large 401(k) Plan, American Economic Review, 93, 193, 10.1257/000282803321455223 · DOI
- Arditti, 1967, Risk and Required Return on Equity, Journal of Finance, 22, 19, 10.1111/j.1540-6261.1967.tb01651.x · DOI
- Barber, 2001, Boys will be Boys: Gender, Overconfidence, and Common Stock Investment, Quarterly Journal of Economics, 116, 261, 10.1162/003355301556400 · DOI · Paper page
- Barberis, 2007, Stocks as Lotteries: The Implications of Probability Weighting for Security Prices, 10.3386/w12936 · DOI
- Barberis, 2006, Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing, American Economic Review, 96, 1069, 10.1257/aer.96.4.1069 · DOI
- Benartzi, 2001, Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock, Journal of Finance, 56, 1747, 10.1111/0022-1082.00388 · DOI
- Benartzi, 2001, Naive Diversification Strategies in Retirement Saving Plans, American Economic Review, 91, 79, 10.1257/aer.91.1.79 · DOI
- Bennett, 2003, Greener Pastures and the Impact of Dynamic Institutional Preferences, Review of Financial Studies, 16, 1203, 10.1093/rfs/hhg040 · DOI
- Bilias, 2005, Equity Culture and the Distribution of Wealth
- Blume, 1974, Stockholders in the United States: Characteristics and Trends, Survey of Current Business, 54, 16
- Blume, 1975, The Asset Structure of Individual Portfolios and Some Implications for Utility Functions, Journal of Finance, 30, 585, 10.2307/2978737 · DOI
- Brennan, 1975, The Optimal Number of Securities in a Risky Asset Portfolio When There are Fixed Costs of Transacting: Theory and Some Empirical Results, Journal of Financial and Quantitative Analysis, 10, 483, 10.2307/2330492 · DOI
- Brennan, 1999, Individual Decision Making and Investor Welfare, Economic Notes, 28, 119, 10.1111/1468-0300.00007 · DOI
- Carroll, 2002, Portfolios of the Rich, 389, 10.7551/mitpress/3568.003.0015 · DOI
- Conine, 1981, On Diversification Given Asymmetry in Returns, Journal of Finance, 36, 1143, 10.1111/j.1540-6261.1981.tb01081.x · DOI
- Daniel, 1997, Measuring Mutual Fund Performance with Characteristic-Based Benchmarks, Journal of Finance, 52, 1035
- Fama, 1997, Industry Costs of Capital, Journal of Financial Economics, 43, 153, 10.1016/S0304-405X(96)00896-3 · DOI
- Goetzmann, 2005, Long-Term Global Market Correlations, Journal of Business, 78, 1, 10.1086/426518 · DOI
- Goldsmith, 1976, Transaction Costs and the Theory of Portfolio Selection, Journal of Finance, 31, 1127, 10.1111/j.1540-6261.1976.tb01964.x · DOI
- Golec, 1998, Bettors Love Skewness, Not Risk, at the Horse Track, Journal of Political Economy, 106, 205, 10.1086/250007 · DOI
- Grinblatt, 2001, How Distance, Language, and Culture Influence Stockholdings and Trades, Journal of Finance, 56, 1053, 10.1111/0022-1082.00355 · DOI
- Guiso, 2002, Household Portfolios, 10.7551/mitpress/3568.001.0001 · DOI
- Heath, 1991, Preferences and Beliefs: Ambiguity and Competence in Choice under Uncertainty, Journal of Risk and Uncertainty, 4, 5, 10.1007/BF00057884 · DOI · Paper page
- Huberman, 2001, Familiarity Breeds Investment, Review of Financial Studies, 14, 659, 10.1093/rfs/14.3.659 · DOI
- Huberman, 2004, Performance and Employer Stock in 401(k) Plans, Review of Finance, 8, 403, 10.1007/s10679-004-2544-y · DOI
- Ivković, 2005, Tax-Motivated Trading by Individual Investors, American Economic Review, 95, 1605, 10.1257/000282805775014461 · DOI
- Ivković, 2007, Portfolio Concentration and the Performance of Individual Investors
- Ivković, 2005, Local Does as Local Is: Information Content of the Geography of Individual Investors' Common Stock Investments, Journal of Finance, 60, 267, 10.1111/j.1540-6261.2005.00730.x · DOI
- Kahneman, 1993, Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking, Management Science, 39, 17, 10.1287/mnsc.39.1.17 · DOI · Paper page
- Kelly, 1995, All Their Eggs in One Basket: Portfolio Diversification of U.S. Households, Journal of Economic Behavior and Organization, 27, 87, 10.1016/0167-2681(95)00006-E · DOI
- Kennickell, 1997, Family Finances in the US: Recent Evidence from the Survey of Consumer Finances, Federal Reserve Bulletin, 83, 1
- King, 1987, Asset Accumulation, Information and Life Cycle, Journal of Financial Economics, 29, 97
- Kroll, 1992, Further Tests of the Separation Theorem and the Capital Asset Pricing Model, American Economic Review, 82, 664
- Kroll, 1988, Experimental Tests of the Separation Theorem and the Capital Asset Pricing Model, American Economic Review, 78, 500
- Kumar, 2008, How Do Decision Frames Influence the Stock Investment Choices of Individual Investors?
- Langer, 1975, The Illusion of Control, Journal of Personality and Social Psychology, 32, 311, 10.1037/0022-3514.32.2.311 · DOI
- Lease, 1974, The Individual Investor: Attributes and Attitudes, Journal of Business, 29, 413
- Merton, 1987, A Simple Model of Capital Market Equilibrium with Incomplete Information, Journal of Finance, 42, 483, 10.1111/j.1540-6261.1987.tb04565.x · DOI · Paper page
- Meulbroek, 2005, Company Stock in Pension Plans: How Costly Is It?, Journal of Law and Economics, 48, 443, 10.1086/430807 · DOI
- Mitton, 2007, Equilibrium Under-diversification and the Preference for Skewness, Review of Financial Studies, 20, 1255, 10.1093/revfin/hhm011 · DOI
- Morin, 1983, Risk Aversion Revisited, Journal of Finance, 38, 1201, 10.1111/j.1540-6261.1983.tb02291.x · DOI
- Odean, 1998, Are Investors Reluctant to Realize Their Losses?, Journal of Finance, 53, 1775, 10.1111/0022-1082.00072 · DOI
- Polkovnichenko, 2005, Household Portfolio Diversification: A Case For Rank-Dependent Preferences, Review of Financial Studies, 18, 1467, 10.1093/rfs/hhi033 · DOI
- Pontiff, 1996, Costly Arbitrage: Evidence from Closed-End Funds, Quarterly Journal of Economics, 111, 1135, 10.2307/2946710 · DOI
- Shefrin, 1985, The Disposition to Sell Winners Too Early and Ride Losers Too Long, Journal of Finance, 40, 777, 10.1111/j.1540-6261.1985.tb05002.x · DOI · Paper page
- Simkowitz, 1978, Diversification in a Three-Moment World, Journal of Financial and Quantitative Analysis, 13, 927, 10.2307/2330635 · DOI
- Zhu, 2002, The Local Bias of Individual Investors, 10.2139/ssrn.302620 · DOI
Cited by
Sorted by citations
Items 901–918 of 918
The RQE-CAPM: New Insights About the Pricing of Idiosyncratic Risk
Carmichael, B., Koumou, G., & Moran, K. (2022) · Social Science Research Network · doi:10.2139/ssrn.4026448
“The utility function (37) can be helpful for thinking about diversification puzzles (see Bianchi, 2018; Campbell, 2006; Goetzmann and Kumar, 2008; Lozza et al., 2018; Mitton and Vorkink, 2007; Polkovnichenko, 2005) as well as puzzles about idiosyncratic risk (see Ang et al.”
Ren, Y., Pan, B., Wang, C.-Y., Yan, R., & Zhang, M. (2021) · doi:10.1007/978-981-33-4363-4_11
Do Wealthy Investors Benefit from Access to Hedge Funds?
Sinclair, A. J., & Zhang, C. (2021) · Social Science Research Network · doi:10.2139/ssrn.3779042
Frattaroli, M. (2020) · doi:10.5075/epfl-thesis-7882
“Studying the portfolio allocation decisions of individual investors in the stock market, Goetzmann and Kumar (2008) find that the average investor holds only four stocks in his account at a large online brokerage firm.”
BackgroundFormal versus Informal Mortgage Debt and Stock Market Participation
Yang, J.-A., Fabozzi, F., Jiang, D.-L., & Xiao, K.-L. (2020) · Social Science Research Network · doi:10.2139/ssrn.3516166
Household Finance: Introduction
Agarwal, S., Qian, W.-L., & Tan, R. (2020) · Household Finance · doi:10.1007/978-981-15-5526-8_1
Disastrous Selling Decisions: The Disposition Effect and Natural DisastersPreprint
Henriksson, M. (2019) · SSRN Electronic Journal · doi:10.2139/ssrn.3358609 · Cited by 1
“Their portfolios tend to be under-diversified (Goetzmann and Kumar, 2008) with a particular tilt toward local stocks (Seasholes and Zhu, 2010).”
Idiosyncratic Risk and Returns: The Case for a More Efficient Class of Estimators
Parkash, M., Singhal, R., & Zhu, Y. (2018) · International Review of Business and Economics · doi:10.56902/irbe.2018.2.1.9
The Effect of Preceding Sequences on Stock Returns
Kudryavtsev, A. (2017) · doi:10.18267/j.efaj.202
“Goetzmann and Kumar (2008) argue that U.S. investors who exhibit trend-contrarian behaviour tend to perform less portfolio diversification.”
BackgroundThe Banks Cost of Capital: Theories and Empirical Evidence
Beltrame, F., & Previtali, D. (2016) · Palgrave Macmillan UK eBooks · doi:10.1057/978-1-137-56142-8_5
Beltrame, F., Previtali, D., & Grassetti, L. (2015) · Palgrave Macmillan UK eBooks · doi:10.1057/9781137530943_2
Behavioral FinancePreprint
Hirshleifer, D. (2014) · SSRN Electronic Journal · doi:10.2139/ssrn.2480892
“…generally, familiarity and in-group biases are sources of underdiversification, a problem to which unsophisticated investors are especially subject (Goetzmann & Kumar (2008)). d. Sentiment, shifting optimism and risk tolerance Investor sentiment is the fluctuating general attitude toward…”
Teall, J. L. (2013) · Elsevier eBooks · doi:10.1016/b978-0-12-391880-2.00010-1
Jung, D. (2013) · doi:10.25335/m58p5vh2c
Performance of individual investors and personal investment objectivesPreprint
Magron, C.-E. (2012) · SSRN Electronic Journal · doi:10.2139/ssrn.2083526
Stocks Repurchase and Sophistication of Individual InvestorsPreprint
Magron, C., & Merli, M. (2011) · SSRN Electronic Journal · doi:10.2139/ssrn.1927228
“Weber and Camerer (1998) and Grinblatt and Keloharju (2000) found that investor update their reference point with new prices when purchase price is too “old”.”
BackgroundEssays on volatility risk premia in asset pricing
Boguth, O. (2010) · doi:10.14288/1.0071150
Metadata
- Authors
- Goetzmann, W. N., & Kumar, A.
- Affiliations
- Yale University (US)
- The University of Texas at Austin (US)
- ORCID
- Kumar, Alok
- Venue
- Review of Finance
- Publisher
- Oxford University Press (OUP)
- Published
- 2008-01-01
- Volume
- 12
- Issue
- 3
- Pages
- 433-463
- ISSN
- 1382-6662 (ISSN-L)
- 1573-692X
- 1572-3097
- OpenAlex
- W3122442489
- Cited by
- 1,222
- References
- 0
- Citations by year
- 2026: 50 · 2025: 64 · 2024: 101 · 2023: 47 · 2022: 77 · 2021: 80 · 2020: 85 · 2019: 68 · 2018: 72 · 2017: 88 · 2016: 76 · 2015: 55 · 2014: 71 · 2013: 65 · 2012: 69
- FWCI
- 78.63
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- European Finance Review (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Keywords
- portfolio diversification, under-diversification, retail investors, investor sophistication, overconfidence, local bias, stock market volatility, skewness, investor demographics, portfolio size, transaction costs, diversification costs
About these checks
Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
Statistics and arithmetic are recomputed, not judged.
Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.
What counts as a claim ›How we measure confidence ›How we check this ›
Are you an author, or do you see a problem with this page? Request a review
