Equity portfolio diversification

William N. Goetzmann, Alok Kumar

Research output: Contribution to journalArticlepeer-review

469 Scopus citations


This study shows that U.S. individual investors hold under-diversified portfolios, where the level of under-diversification is greater among younger, low-income, less-educated, and less-sophisticated investors. The level of under-diversification is also correlated with investment choices that are consistent with over-confidence, trend-following behavior, and local bias. Furthermore, investors who over-weight stocks with higher volatility and higher skewness are less diversified. In contrast, there is little evidence that portfolio size or transaction costs constrains diversification. Under-diversification is costly to most investors, but a small subset of investors under-diversify because of superior information.

Original languageEnglish (US)
Pages (from-to)433-463
Number of pages31
JournalReview of Finance
Issue number3
StatePublished - 2008
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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