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
Citations
Cites
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Cited by
Sorted by citations
CEO Gender, Corporate Risk-Taking, and the Efficiency of Capital Allocation
Faccio, M., Marchica, M., & Mura, R. (2016) · Journal of Corporate Finance · doi:10.1016/j.jcorpfin.2016.02.008 · Cited by 1,743
Stocks as Lotteries: the Implications of Probability Weighting for Security PricesPreprint
Barberis, N., & Huang, M. (2008) · SSRN Electronic Journal · doi:10.2139/ssrn.649421 · Cited by 1,482
Maxing Out: Stocks as Lotteries and the Cross-Section of Expected ReturnsPreprint
Bali, T. G., Cakici, N., & Whitelaw, R. F. (2011) · SSRN Electronic Journal · doi:10.2139/ssrn.1262416 · Cited by 1,433
“For value-weighted decile portfolios, the difference between returns on the portfolios with the 1 See, for example, Odean (1999), Mitton and Vorkink (2007), and Goetzmann and Kumar (2008) for evidence based on the portfolios of a large sample of U.S. individual investors.”
BackgroundIdiosyncratic Risk MattersPreprint
Goyal, A., & Santa-Clara, P. (2003) · SSRN Electronic Journal · doi:10.2139/ssrn.331921 · Cited by 1,157
“Goetzmann and Kumar (2001) and Polkovnichenko (2001) provide additional evidence on the lack of diversification of the equity portfolios of individual investors.”
Reis, P. M., & Pinto, A. P. S. (2018) · Encyclopedia of Sustainable Management · doi:10.1017/9781108303606.010 · Cited by 1,143
“More generally, familiarity and in-group biases are sources of underdiversification, a problem to which unsophisticated investors are especially subject (Goetzmann & Kumar 2008).”
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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