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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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BackgroundCandraningrat, I. R., & Sakir, A. (2019) · Proceedings of the 2019 International Conference on Organizational Innovation (ICOI 2019) · doi:10.2991/icoi-19.2019.20 · Cited by 5
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“For the recent financial crisis in 2007 to 2008, see Greenlaw et al. (2008) and Brunnermeier (2009).”
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BackgroundIndividual Investor Portfolios
Polkovnichenko, V. (2011) · doi:10.1002/9781118258415.ch29 · Cited by 4
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“…pricing assets, it is an appealing argument given the large empirical evidence documenting that both retail (Polkovnichenko, 2005; Campbell, 2006; Goetzmann and Kumar, 2008) and institutional investors (Koijen and Yogo, 2019, table 2) invest in only a small number of available stocks.26 Below we…”
BackgroundRichard Thaler ou comment la finance est devenue comportementale
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“Similarly, diversified investment portfolios help mitigate risks and enhance long-term financial security [28].”
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“According to Goetzmann & Kumar (2008), while investors recognise the benefits of diversification, they often build portfolios without sufficiently considering asset correlations.”
Simaan, Y. (2024) · Annals of Operations Research · doi:10.1007/s10479-024-06404-8 · Cited by 3
“The study by Kumar and Goetzmann (2004) documents the existence of under-diversification in the US.”
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“We explain this finding by the idea that more experienced investors show lower risk appetite, are less overconfident and diversify their portfolio more compared to less experienced investors (Goetzmann & Kumar, 2008; Morin & Suarez, 1983).”
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“The SSPW (Goetzmann and Kumar, 2008) is given by where ˆ ω i , j stands for the one-step-ahead portfolio weights obtained in the window i for asset j .”
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“In order to mitigate the wealth effect (Vissing-Jorgensen, 2002, 2003; Goetzmann and Kumar, 2008), households whose net wealth is less than Chinese Yuan (CNY) 100,000 or whose net stock holding worth fewer than CNY 10,000 are excluded.”
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“In addition, Goetzmann and Kumar (2008) exhibit that more than 25% of the investors’ portfolios contain only one stock, over half contain no more than three stocks while less than 10% contain more than ten stocks.”
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“Earlier studies find that wealthier individuals usually have a higher exposure to financial markets, are on average more sophisticated, and hold better diversified stock portfolios (e.g., Goetzmann and Kumar, 2008).”
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DAVRANIŞSAL FİNANSIN PSİKOLOJİK EĞİLİMLERİNİN KAVRAMSAL DEĞERLENDİRMESİ
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Stockholdings of first-time and more experienced investors
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“…on investors in developed countries finds that many retail investors make mistakes that significantly reduce their lifetime wealth (Odean, 1998; Grinblatt and Keloharju, 2000; Campbell, 2006; Malmendier and Shanthikumar, 2007; Goetzmann and Kumar, 2008; Barber et al., 2009; Badarinza et al., 2016).”
BackgroundA skewed distribution with asset pricing applications
de Roon, F. D., & Karehnke, P. (2017) · doi:10.1093/rof/rfw040 · Cited by 3
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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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