Equity Portfolio Diversification

Posted: 8 Aug 2008

See all articles by William N. Goetzmann

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Alok Kumar

University of Miami - Miami Herbert Business School

Multiple version iconThere are 4 versions of this paper

Date Written: 2008


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.

Keywords: G11, G12

Suggested Citation

Goetzmann, William N. and Kumar, Alok, Equity Portfolio Diversification (2008). Review of Finance, Vol. 12, No. 3, pp. 433-463, 2008, Available at SSRN: https://ssrn.com/abstract=1212099 or http://dx.doi.org/rfn005

William N. Goetzmann (Contact Author)

Yale School of Management - International Center for Finance ( email )

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Alok Kumar

University of Miami - Miami Herbert Business School ( email )

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HOME PAGE: http://moya.bus.miami.edu/~akumar

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