Achieving Portfolio Diversification for Individuals with Low Financial Sustainability

Yongjae Lee, Woo Chang Kim and Jang Ho Kim
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Yongjae Lee: Department of Industrial Engineering, Ulsan National Institute of Science and Technology (UNIST), Ulsan 44919, Korea
Woo Chang Kim: Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology (KAIST), Daejeon 34141, Korea
Jang Ho Kim: Department of Industrial and Management Systems Engineering, Kyung Hee University, Yongin-si 17104, Gyeonggi-do, Korea

Sustainability, 2020, vol. 12, issue 17, 1-16

Abstract: While many individuals make investments to gain financial stability, most individual investors hold under-diversified portfolios that consist of only a few financial assets. Lack of diversification is alarming especially for average individuals because it may result in massive drawdowns in their portfolio returns. In this study, we analyze if it is theoretically feasible to construct fully risk-diversified portfolios even for the small accounts of not-so-rich individuals. In this regard, we formulate an investment size constrained mean-variance portfolio selection problem and investigate the relationship between the investment amount and diversification effect.

Keywords: portfolio size; portfolio diversification; individual investor; financial sustainability (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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