Mean-variance model and investors’ diversification attitude: A theoretical revisit

Nettey Boevi Gilles Koumou ()

Finance Research Letters, 2020, vol. 37, issue C

Abstract: In this paper, we re-examine investors’ diversification attitude in the mean-variance model from the perspective of Markowitz’s (1952) principle of diversification. Our analysis is based on diversification returns, the specific Markowitz’s (1952) principle of diversification measure in the mean-variance model. We show, regardless of whether or not the risk-free asset is available, that investors’ diversification attitude is characterized by their risk attitude in the mean-variance model with short sales. More specifically, depending on the mean-variance model inputs, investors’ diversification is an increasing function or an inverted U-shaped concave function of their risk aversion.

Keywords: Risk; Diversification; Diversification returns; Mean-variance model (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:37:y:2020:i:c:s1544612318306160

DOI: 10.1016/j.frl.2019.101360

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