More possessions, more worry

Haim Levy and Yusif Simaan

European Journal of Operational Research, 2016, vol. 255, issue 3, 893-902

Abstract: A common wisdom asserts that the wider the universe of assets to choose from, the greater the investor's welfare. We show that this is not the case in practice, where parameters have to be estimated even when the estimates are unbiased. Surprisingly, risk aversion plays a crucial role corresponding to the desirability of asset expansion by dividing investors in three groups: investors with very low risk tolerance and investors with very high risk tolerance are better-off with asset expansion, and investors with moderate risk tolerance are worse-off despite the option to refrain from investing in the additional asset.

Keywords: Finance; Estimation errors; Risk tolerance; Upper and lower bounds; Asset expansion (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:255:y:2016:i:3:p:893-902

DOI: 10.1016/j.ejor.2016.06.022

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