IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

How does household portfolio diversification vary with financial sophistication and advice?

  • von Gaudecker, Hans-Martin


    (Munich Center for the Economics of Aging (MEA))

Economic theory suggests that households should invest their financial wealth in a combination of cash and a well-diversified equity portfolio. Yet, many households' equity investments are strongly concentrated in a few assets. Attempts to explain this discrepancy have included low levels of cognitive skills and/or financial knowledge; and poor or misguided financial advice. In order to investigate these claims empirically, I construct detailed portfolios for the respondents to a Dutch household survey. The data allow me to estimate the portfolios' risk-return properties without resorting to assumptions about characteristics of specific asset classes. Controlling for a large number of covariates, my results show that the combination of low numerical-financial skills and not seeking advice from other persons is strongly associated with the largest losses from underdiversification, whereas financial knowledge does not seem to have much of an effect.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 11238.

in new window

Date of creation: 22 Mar 2011
Date of revision:
Handle: RePEc:mea:meawpa:11238
Contact details of provider: Postal: Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy, Amalienstraße 33, 80799 München, Germany
Phone: +49/89/38602.442
Fax: +49/89/38602.490
Web page:

Order Information: Email:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mea:meawpa:11238. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Henning Frankenberger)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.