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A behavioral analysis of investor diversification


  • Ana-Maria Fuertes
  • Gulnur Muradoglu
  • Belma Ozturkkal


This paper studies the link between individual investors' portfolio diversification levels and various personal traits that proxy informational advantages and overconfidence. The analysis is based on objective data from the largest Turkish brokerage house tracking 59,951 individual investors' accounts with a total of 3,248,654 million transactions over the period 2008-2010. Wealthier, highly educated, older investors working in the finance sector and those trading relatively often show higher diversification levels possibly because they are better equipped to obtain and process information. Finance professionals, married investors, and those placing high-volume orders through investment centers show poorer diversification possibly as a reflection of overconfidence. Our analysis reveals important nonlinear effects, implying that the marginal impact of overconfidence on diversification is not uniform across investors but varies according to the investor's information gathering and processing abilities.

Suggested Citation

  • Ana-Maria Fuertes & Gulnur Muradoglu & Belma Ozturkkal, 2014. "A behavioral analysis of investor diversification," The European Journal of Finance, Taylor & Francis Journals, vol. 20(6), pages 499-523, June.
  • Handle: RePEc:taf:eurjfi:v:20:y:2014:i:6:p:499-523
    DOI: 10.1080/1351847X.2012.719829

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    Cited by:

    1. Lu, Xiaomeng & Guo, Jiaojiao & Gan, Li, 2020. "International comparison of household asset allocation: Micro-evidence from cross-country comparisons," Emerging Markets Review, Elsevier, vol. 43(C).
    2. Duxbury, Darren & Hudson, Robert & Keasey, Kevin & Yang, Zhishu & Yao, Songyao, 2015. "Do the disposition and house money effects coexist? A reconciliation of two behavioral biases using individual investor-level data," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 55-68.
    3. Lu, Xiaomeng & Zhang, Yong & Zhang, Yixing & Wang, Lin, 2020. "Can investment advisors promote rational investment? Evidence from micro-data in China," Economic Modelling, Elsevier, vol. 86(C), pages 251-263.

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