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More possessions, more worry

Author

Listed:
  • Levy, Haim
  • Simaan, Yusif

Abstract

A common wisdom asserts that the wider the universe of assets to choose from, the greater the investor's welfare. We show that this is not the case in practice, where parameters have to be estimated even when the estimates are unbiased. Surprisingly, risk aversion plays a crucial role corresponding to the desirability of asset expansion by dividing investors in three groups: investors with very low risk tolerance and investors with very high risk tolerance are better-off with asset expansion, and investors with moderate risk tolerance are worse-off despite the option to refrain from investing in the additional asset.

Suggested Citation

  • Levy, Haim & Simaan, Yusif, 2016. "More possessions, more worry," European Journal of Operational Research, Elsevier, vol. 255(3), pages 893-902.
    • Handle: RePEc:eee:ejores:v:255:y:2016:i:3:p:893-902
    DOI: 10.1016/j.ejor.2016.06.022
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    References listed on IDEAS

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    Cited by:

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    3. Emmanouil Platanakis & Athanasios Sakkas & Charles Sutcliffe, 2017. "Should Portfolio Model Inputs Be Estimated Using One or Two Economic Regimes?," ICMA Centre Discussion Papers in Finance icma-dp2017-07, Henley Business School, University of Reading.
    4. Carroll, Rachael & Conlon, Thomas & Cotter, John & Salvador, Enrique, 2017. "Asset allocation with correlation: A composite trade-off," European Journal of Operational Research, Elsevier, vol. 262(3), pages 1164-1180.
    5. Platanakis, Emmanouil & Urquhart, Andrew, 2020. "Should investors include Bitcoin in their portfolios? A portfolio theory approach," The British Accounting Review, Elsevier, vol. 52(4).
    6. Simaan, Majeed & Simaan, Yusif & Tang, Yi, 2018. "Estimation error in mean returns and the mean-variance efficient frontier," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 109-124.
    7. Dias, José Carlos & Vidal Nunes, João Pedro, 2018. "Universal recurrence algorithm for computing Nuttall, generalized Marcum and incomplete Toronto functions and moments of a noncentral χ2 random variable," European Journal of Operational Research, Elsevier, vol. 265(2), pages 559-570.

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