Portfolio diversification: An experimental study

Arbeitspapier

The paper analyses on an experimental basis the phenomenon of non-optimal under-diversification in portfolio choice decisions and investigates the reasons behind it. The most important obstacles for optimal diversification are studied the correlation neglect hypothesis and the overconfidence which both lead to suboptimal diversification decisions. The investment alternatives are constructed in a way that the Markowitz' efficiency frontier is reduced to a single point in the return-risk diagram so that unambiguous interpretation of the results is possible: the subjects neglect the correlation between the assets, use naïve diversification strategies and take irrelevant information as a foundation for their investment decisions, the first effect being stronger than the second.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Diskussionsbeiträge ; No. 140

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Criteria for Decision-Making under Risk and Uncertainty ; Portfolio Choice; Investment Decisions
• Subject: experimental economics ; portfolio choice ; investment decisions ; correlation neglect ; overconfidence

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gubaydullina, Zulia ; Spiwoks, Markus
• Event: Veröffentlichung
• (who): Georg-August-Universität Göttingen, Volkswirtschaftliches Seminar
• (where): Göttingen
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/31969
• Last update: 10.03.2025, 11:43 AM CET