Diversification versus optimality: is there really a diversification puzzle?

Sergio Ortobelli Lozza, Wing-Keung Wong, Frank Fabozzi () and Martin Egozcue

Applied Economics, 2018, vol. 50, issue 43, 4671-4693

Abstract: In this paper, we provide a general valuation of the diversification attitude of investors. First, we empirically examine the diversification of mean-variance optimal choices in the US stock market during the 11-year period 2003–2013. We then analyze the diversification problem from the perspective of risk-averse investors and risk-seeking investors. Second, we prove that investors’ optimal choices will be similar if their utility functions are not too distant, independent of their tolerance (or aversion) to risk. Finally, we discuss investors’ attitude towards diversification when the choices available to investors depend on several parameters.

Date: 2018
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DOI: 10.1080/00036846.2018.1459037

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