Diversi…fication, Gambling and Market Forces

62 Pages Posted: 14 Mar 2012 Last revised: 2 Oct 2013

See all articles by Patrick Roger

Patrick Roger

Strasbourg University - LARGE Research Center - EM Strasbourg Business School

Marie-Hélène Broihanne

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School

Maxime Merli

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School

Date Written: September 30, 2013

Abstract

Though simple and appealing, mean-variance portfolio choice theory does not describe actual diversi…fication choices by investors, especially their propensity to gamble and the solvency constraints they face. Using 8 million trades realized by 90,000 individual investors, we show that diversifi…cation choices are in fact sharply driven by skewness of returns and portfolio value as well. We also show that the in‡fluence of diversifi…cation on the skewness of returns is strongly shaped by market forces. These results survive several robustness checks, including controlling for individual heterogeneity and time-variability of stock price comovements.

Keywords: Underdiversi…cation, solvency constraints, skewness, individual investors

JEL Classification: G11, G12

Suggested Citation

Roger, Patrick and Broihanne, Marie-Hélène and Merli, Maxime, Diversi…fication, Gambling and Market Forces (September 30, 2013). Available at SSRN: https://ssrn.com/abstract=2021160 or http://dx.doi.org/10.2139/ssrn.2021160

Patrick Roger (Contact Author)

Strasbourg University - LARGE Research Center - EM Strasbourg Business School ( email )

PEGE
61 avenue de la Forêt Noire
Strasbourg, 67000
France

Marie-Hélène Broihanne

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School ( email )

PEGE
61 avenue de la Forêt Noire
Strasbourg, 67000
France

Maxime Merli

Strasbourg University, LaRGE Research Center, EM Strasbourg Business School ( email )

PEGE
61 avenue de la Forêt Noire
Strasbourg, 67000
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
159
Abstract Views
1,152
rank
236,047
PlumX Metrics