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.
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“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
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Heaney, R., & Holmén, M. (2008) · Applied Financial Economics · doi:10.1080/09603100701735912 · Cited by 20
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Equity portfolio diversification with high frequency data
Alexeev, V., & Dungey, M. H. (2015) · doi:10.1080/14697688.2014.973898 · Cited by 19
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“This is because diversified investments produce higher returns and face lower risks [33,34].”
BackgroundSuperstition and stock price crash risk
Bai, M., Xu, L., Yu, C., & Zurbruegg, R. (2020) · Pacific-Basin Finance Journal · doi:10.1016/j.pacfin.2020.101287 · Cited by 18
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Lyandres, E., Marchica, M., Michaely, R., & Mura, R. (2019) · The Review of financial studies · doi:10.1093/rfs/hhz050 · Cited by 18
“…of firm owners’ portfolio diversification are common in the literature (e.g., Barber and Odean (2000), Bodnaruk, Kandel, Massa and Simonov (2008), Goetzman and Kumar (2008), and Faccio, Marchica and Mura (2011)), they may not fully capture the true diversification of owners’ portfolios, which…”
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Too Much Is Too Bad: The Effect of Media Coverage on the Price Volatility of Cryptocurrencies
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BackgroundMethodDoes portfolio concentration affect performance? Evidence from corporate bond mutual funds
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“, Winkler and Makridakis [1983], Granger and Jeon [2004], Aiolfi and Favero [2005]).”
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“Goetzmann and Kumar (2008) find such evidence for diversification of stock portfolios.”
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“For example, Goetzmann and Kumar (2002) examine more than 40,000 equity investment accounts over a 6-year period from 1991 to 1996 and find that the average investor has four stocks in her/his portfolio, while less than 5% of investors hold more than 10 stocks in their portfolios.”
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Do individual investors trade differently in different financial markets?
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“We follow the Goetzmann and Kumar (2008) and Bailey, Kumar, and Ng’s (2008) approach, which was also used by Abreu, Mendes, and Santos (2011) and Abreu and Mendes (2018), and we define an investor as overconfident if her/his trading activity is in the top quartile of the distribution in investors’…”
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Investor sentiment and stock return predictability: The power of ignorance
D'Hondt, C., & Roger, P. (2018) · Finance · doi:10.3917/fina.382.0007 · Cited by 15
“underdiversification, is highlighted in Lease et al. (1974) and Blume and Friend (1975).”
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Performance Determinants of Malaysian Real Estate Investment Trusts
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“Consistent with the theoretical predictions in Barberis and Huang (2008), Mitton and Vorkink (2007), and Goetzmann and Kumar (2008) use datasets of investor trading accounts and find individual investors hold undiversified portfolios containing stocks with high levels of idiosyncratic skewness.”
BackgroundResultNaïve *Buying* Diversification and Narrow Framing by Individual Investors
Gathergood, J., Hirshleifer, D. A., Leake, D., Sakaguchi, H., & Stewart, N. (2019) · National Bureau of Economic Research · doi:10.3386/w25567 · Cited by 4
“portfolios is consistent with existing studies that document a lack of diversification among individual investors in the individual stock component of the portfolio (Goetzmann and Kumar 2008; Barber and Odean 2013).”
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Marco, F. D., Macchiavelli, M., & Valchev, R. (2018) · doi:10.2139/ssrn.3048344 · Cited by 14
Hur, J., & Singh, V. (2017) · Financial Management · doi:10.1111/fima.12145 · Cited by 14
“2 See Odean (1999), Milton and Vorkink (2007), and Goetzmann and Kumar (2008) for empirical evidence and Van Nieuwerburgh and Veldkamp (2010) for theoretical arguments.”
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Regional Dimensions of Monetary Policy in Indonesia
Ridhwan, M. (2013) · doi:10.1080/00074918.2013.850635 · Cited by 14
“Similarly, Goetzmann and Kumar (2008) study the behaviour of portfolio investors”
BackgroundFactors influencing investor choice of retirement funds
Lee, A., Xu, Y., & Hyde, K. F. (2013) · Journal of Financial Services Marketing · doi:10.1057/fsm.2013.8 · Cited by 13
Hitchen, C., Anderson, J., & Rose, J. T. (2011) · doi:10.2139/ssrn.2084722 · Cited by 14
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Is CSR linked to idiosyncratic risk? Evidence from the copula approach
Mefteh-Wali, S., Rais, H., & Schier, G. (2022) · Annals of Operations Research · doi:10.1007/s10479-022-04980-1 · Cited by 13
“…we used the CAPM model with the quarterly excess returns, the return of STOXX Europe 600 as return of the market and the return of EONIA INDEX as risk-free return. with Following Merton (1987), Malkiel and Xu (2006), Goetzmann and Kumar (2008), Fu (2009) Brandt et al (2010) and Huang et al (2010).”
Information diversity and household portfolio diversification
Liu, Z., Li, K.-X., & Zhang, T. (2022) · International Journal of Finance & Economics · doi:10.1002/ijfe.2622 · Cited by 13
Sabir, S. A., Javed, T., Khan, S., & Javed, M. Z. (2021) · doi:10.47750/cibg.2021.27.02.134 · Cited by 13
“A lot of studies have been conducted on the investment behaviour of individual investors (Akhtar & Das, 2019; Goetzmann & Kumar, 2008; Korniotis & Kumar, 2011; Kumar & Goyal, 2016).”
BackgroundSources of Uncertainty and Subjective Prices
Cappelli, V., Cerreia‐Vioglio, S., Maccheroni, F., Marinacci, M., & Minardi, S. (2020) · Journal of the European Economic Association · doi:10.1093/jeea/jvaa013 · Cited by 13
Net Buyers of Attention-Grabbing Stocks? Who Exactly Are They?
Gavish, L. R., Qadan, M., & Yagil, J. (2020) · Journal of Behavioral Finance · doi:10.1080/15427560.2020.1716360 · Cited by 16
Framing and the disposition effect in a scopic regime
Liêu, L. M., & Pelster, M. (2020) · The Quarterly Review of Economics and Finance · doi:10.1016/j.qref.2020.01.008 · Cited by 14
Influence of Investor and Advisor Big Five Personality Congruence on Futures Trading Behavior
Tauni, M. Z., Memon, Z., Fang, H., Jebran, K., & Ahsan, T. (2019) · Emerging markets finance & trade · doi:10.1080/1540496x.2019.1672529 · Cited by 13
“The behavioral finance theory suggests that investors cannot perceive all related information since investor behavior is affected by various psychological processes such as affect, cognition, and heuristics (e.g., Campbell 2006; Goetzmann and Kumar 2008; Polkovnichenko 2005).”
BackgroundProbability Weighting and Asset Prices: Evidence from Mergers and AcquisitionsPreprint
Wang, B.-L. (2017) · SSRN Electronic Journal · doi:10.2139/ssrn.2392123 · Cited by 13
Made poorer by choice: Worker outcomes in social security vs. private retirement accounts
Ahmed, J. I., Barber, B. M., & Odean, T. (2016) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2016.08.003 · Cited by 13
Diversification, gambling and market forces
Broihanne, M., Merli, M., & Roger, P. (2015) · Review of Quantitative Finance and Accounting · doi:10.1007/s11156-015-0497-1 · Cited by 13
“The evolution of the number of stocks is different from that observed by Goetzmann and Kumar (2007) for a sample of U.S. investors.”
Individual Investors Repurchasing Behavior: Preference for Stocks Previously Owned
Leal, C., Armada, M. J. D. R., & Loureiro, G. (2013) · doi:10.2139/ssrn.2308649 · Cited by 13
“As Goetzmann and Kumar (2008), we observe that, in general, investors in our sample are under-diversified and trade many times the same stock.”
BackgroundNon-Gaussian diversification: When size matters
Desmoulins-Lebeault, F., & Kharoubi-Rakotomalala, C. (2012) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2012.03.006 · Cited by 13
Sophistication of Individual Investors and Disposition Effect Dynamics
Boolell-Gunesh, S., Broihanne, M., & Merli, M. (2012) · Finance · doi:10.3917/fina.331.0009 · Cited by 13
Risk Aversion, Entrepreneurial Risk, and Portfolio Selection
Fang, H.-Y., & Nofsinger, J. (2009) · The Journal of Entrepreneurial Finance · doi:10.57229/2373-1761.1020 · Cited by 13
Investor Awareness and Market Segmentation: Evidence from S&P 500 Index Changes
Chen, H.-H., Singal, V., & Noronha, G. M. (2002) · doi:10.2139/ssrn.302884 · Cited by 13
Investor Diversification and the Pricing of Idiosyncratic Risk
Fu, F.-J. (2010) · doi:10.2139/ssrn.1786067 · Cited by 13
Ma, Y., Mamun, A. A., Hoque, M. E., Masukujjaman, M., & Ja’afar, R. (2025) · Environment Development and Sustainability · doi:10.1007/s10668-025-06058-x · Cited by 9
Tech-Enabled Financial Data Access, Retail Investors, and Gambling-Like Behavior in the Stock Market
Havakhor, T., Rahman, M., Zhang, T., & Zhu, C.-Q. (2024) · Management Sciences · doi:10.1287/mnsc.2021.01379 · Cited by 13
Robba, M., Sorgente, A., & Iannello, P. (2024) · Current Research in Behavioral Sciences · doi:10.1016/j.crbeha.2024.100151 · Cited by 15
Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification
Broekema, S. P. M., & Kramer, M. M. (2021) · Journal of risk and financial management · doi:10.3390/jrfm14110553 · Cited by 15
DOES HEURISTIC BEHAVIOR LEAVE ANOMALIES IN THE CAPITAL MARKET?
Lazuarni, S., & Asri, M. (2020) · Journal of Indonesian Economy and Business · doi:10.22146/jieb.45652 · Cited by 12
“…(1974) state that heuristics can help in many situations, but also lead to biased decisions, such as selling shares that are increasing in value too quickly and holding losing shares for too long (Odean, 1998), trading excessively and under-diversifying a portfolio (Goetzmann & Kumar, 2008).”
BackgroundThe aggregate cost of equity underdiversification
Florentsen, B., Nielsson, U., Raahauge, P., & Rangvid, J. (2019) · The Financial Review · doi:10.1111/fire.12212 · Cited by 12
Lee, K.-H., & Yang, C.-W. (2019) · Pacific-Basin Finance Journal · doi:10.2139/ssrn.3011635 · Cited by 12
How do political and market exposure nurture ambidexterity?
Jiménez, A., & Boehe, D. M. (2018) · Journal of Business Research · doi:10.1016/j.jbusres.2018.03.016 · Cited by 14
Idiosyncratic volatility puzzle: influence of macro-finance factors
Aslanidis, N., Christiansen, C., Lambertides, N., & Savva, C. S. (2018) · Review of Quantitative Finance and Accounting · doi:10.1007/s11156-018-0713-x · Cited by 12
“Yet, the empirical evidence suggests that investors are, in general, not well-diversi ed, e.g. Goetzmann and Kumar (2008).”
Are extreme negative returns priced in the Indian stock market?
Aziz, T., & Ansari, V. A. (2017) · Borsa Istanbul Review · doi:10.1016/j.bir.2017.09.002 · Cited by 11
“This is particularly a possible scenario given that individual investors hold under-diversified portfolios (Goetzmann & Kumar, 2008; Odean, 1999) and MAX is an idiosyncratic risk.”
BackgroundThe Impact of Financial Advice on Trade Performance and Behavioral BiasesPreprint
Hoechle, D., Ruenzi, S., Schaub, N., & Schmid, M. (2017) · SSRN Electronic Journal · doi:10.2139/ssrn.2537368 · Cited by 12
“We then follow previous research and focus on stock trades rather than all trades of financial assets (e.g., Odean, 1998, 1999; Barber and Odean, 2000, 2001; Shapira and Venezia, 2001; Goetzmann and Kumar, 2008).”
Agent based Stock Clustering for Efficient Portfolio Management
Baser, P., & Saini, J. R. (2015) · doi:10.5120/20317-2381 · Cited by 12
“So what is the optimum level of diversification? This matter has been extensively debated in financial literature for over 30 years; various literatures available [1,2,3,4,6,8,10,12,15,17,32]on the optimum stock size of portfolio.”
BackgroundDo Institutional and Individual Investors Differ in Their Preference for Financial Skewness?
Luchtenberg, K. F., & Seiler, M. J. (2014) · Journal of Behavioral Finance · doi:10.1080/15427560.2014.968718 · Cited by 11
Bankrupt Firms: Who's Buying?Preprint
Coelho, L. M. S., John, K., & Taffler, R. (2010) · SSRN Electronic Journal · doi:10.2139/ssrn.1572733 · Cited by 8
Portfolio Diversification and City AgglomerationPreprint
Goetzmann, W., Massa, M., & Simonov, A. (2004) · SSRN Electronic Journal · doi:10.2139/ssrn.472643 · Cited by 12
Self-citationOrganization capital and firm risks
Hasan, M., & Cheung, A. (2023) · China Accounting and Finance Review · doi:10.1108/cafr-05-2022-0044 · Cited by 11
Trading leveraged Exchange-Traded products is hazardous to your wealth
D'Hondt, C., Mcgowan, R. A., & Roger, P. (2021) · The Quarterly Review of Economics and Finance · doi:10.1016/j.qref.2021.02.012 · Cited by 11
Cornil, Y., Hardisty, D. J., & Bart, Y. (2017) · Organizational Behavior and Human Decision Processes · doi:10.1016/j.obhdp.2019.06.001 · Cited by 18
Bai, J.-N., Bali, T. G., & Wen, Q. (2019) · Journal of Financial Economics · doi:10.1016/j.jfineco.2021.05.003 · Cited by 11
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
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