Equity Portfolio Diversification
AbstractIn 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.
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Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm236.
Date of creation: 24 Oct 2001
Date of revision:
Portfolio Diversification; Idiosyncratic Risk; Equity Market Correlation; Individual Investor Behavior;
Other versions of this item:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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