Zulia Gubaydullina () (University of Göttingen) Markus Spiwoks () (Wolfsburg University of Applied Sciences)
Abstract
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.
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Publisher Info
Paper provided by University of Goettingen, Department of Economics in its series Departmental Discussion Papers with number
140.