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The effect of capital wealth on optimal diversification: Evidence from the Survey of Consumer Finances

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  • Yunker, James A.
  • Melkumian, Alla A.
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    Abstract

    It is well known that the wealthier the household, the larger tends to be the proportion of its total capital portfolio allocated to publicly traded stock, and the larger tends to be the number of individual stock issues included in its portfolio. Using the "homogeneous securities" case of a mean-variance model originally proposed by Michael Brennan, explicit functional forms are obtained for both the optimal proportion of the portfolio allocated to stocks and the optimal number of individual stock issues in the portfolio. An empirical evaluation of these theoretical results, using a dataset derived from the 2004 Survey of Consumer Finances, lends substantial support to the model.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 50 (2010)
    Issue (Month): 1 (February)
    Pages: 90-98

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    Handle: RePEc:eee:quaeco:v:50:y:2010:i:1:p:90-98

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Capital wealth Portfolio choice Investment analysis Stock ownership Risk Distribution Survey of Consumer Finances;

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    Cited by:
    1. Barasinska, Nataliya & Schäfer, Dorothea & Stephan, Andreas, 2012. "Individual risk attitudes and the composition of financial portfolios: Evidence from German household portfolios," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(1), pages 1-14.

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