Equity Portfolio Diversification

Alok Kumar () and William Goetzmann
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Alok Kumar: Mendoza College of Business

Yale School of Management Working Papers from Yale School of Management

Abstract: In this paper we examine the portfolios of more than 40,000 equity investment accounts from a large discount brokerage during a six year period (1991-96) in recent U.S. capital market history. Using the historical performance for the equities in these accounts, we find that a vast majority of investors in our sample are under-diversified. A cross-sectional examination of diversification reveals that young and active investors, and investors in low income and non-professional categories hold the least diversified portfolios. Over time, the average degree of diversification has improved but these improvements result primarily from changes in the correlation structure of the US equity market. Nonetheless, improved portfolio diversification has a considerable impact on the composition and performance of investor portfolios.

Keywords: Portfolio Diversification; Idiosyncratic Risk; Equity Market Correlation; Individual Investor Behavior (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2001-10-24
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Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Equity Portfolio Diversification (2008)
Working Paper: Equity Portfolio Diversification (2004)
Working Paper: Equity Portfolio Diversification (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:somwrk:ysm236

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