Portfolio diversification: an experimental study

Zulia Gubaydullina () and Markus Spiwoks ()
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Zulia Gubaydullina: University of Göttingen
Markus Spiwoks: Wolfsburg University of Applied Sciences, http://www.fh-wolfsburg.de/cms/de/fbw/not_in_menu/wirueberuns_fachbereichsteam_spiwoks.html

No 140, Departmental Discussion Papers from University of Goettingen, Department of Economics

Abstract: The paper analyses on an experimental basis the phenomenon of non-optimal under-diversification in portfolio choice decisions and investigates the reasons behind it. The most important obstacles for optimal diversification are studied – the correlation neglect hypothesis and the overconfidence which both lead to suboptimal diversification decisions. The investment alternatives are constructed in a way that the Markowitz’ efficiency frontier is reduced to a single point in the return-risk diagram so that unambiguous interpretation of the results is possible: the subjects neglect the correlation between the assets, use naïve diversification strategies and take irrelevant information as a foundation for their investment decisions, the first effect being stronger than the second.

Keywords: experimental economics; portfolio choice; investment decisions; correlation neglect; overconfidence (search for similar items in EconPapers)
JEL-codes: C91 D81 G11 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2009-03-20
New Economics Papers: this item is included in nep-cbe and nep-exp
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:got:vwldps:140

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