IDEAS home Printed from https://ideas.repec.org/p/ysm/somwrk/ysm452.html
   My bibliography  Save this paper

Portfolio Diversification, Proximity Investment and City Agglomeration

Author

Listed:
  • WILLIAM N. GOETZMANN

    (Yale School of Management - International Center for Finance)

  • MASSIMO MASSA

    (INSEAD - Department of Finance)

  • ANDREI SIMONOV

    (Stockholm School of Economics - Department of Finance)

Abstract

We study the puzzle of portfolio underdiversification and proximity investment from a novel perspective, linking it to the process of urbanization. We find that urban portfolios are more focused - i.e., less diversified and more concentrated in 'close' stocks. We explain it in terms of the process of 'professional specialization' that characterizes urban environments. We test this against a number of alternative theories: financial sophistication, social competition and hedging non-financial risk. We show that the very same factors behind the drive to city agglomeration also affect both the degree of portfolio diversification and proximity investing by influencing investor information and risk.

Suggested Citation

  • William N. Goetzmann & Massimo Massa & Andrei Simonov, 2005. "Portfolio Diversification, Proximity Investment and City Agglomeration," Yale School of Management Working Papers ysm452, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm452
    as

    Download full text from publisher

    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=667961
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Leung, Charles Ka Yui & Teo, Wing Leong, 2011. "Should the optimal portfolio be region-specific? A multi-region model with monetary policy and asset price co-movements," Regional Science and Urban Economics, Elsevier, vol. 41(3), pages 293-304, May.
    2. Morse, Adair & Shive, Sophie, 2011. "Patriotism in your portfolio," Journal of Financial Markets, Elsevier, vol. 14(2), pages 411-440, May.
    3. Abreu, Margarida & Mendes, Victor & Santos, João A.C., 2011. "Home country bias: Does domestic experience help investors enter foreign markets?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2330-2340, September.
    4. Bodnaruk, Andriy & Ostberg, Per, 2009. "Does investor recognition predict returns?," Journal of Financial Economics, Elsevier, vol. 91(2), pages 208-226, February.
    5. Charlotte Christiansen & Juanna Shröter Joensen & Jesper Rangvid, 2005. "Do More Economists Hold Stocks?," Economics Working Papers 2005-06, Department of Economics and Business Economics, Aarhus University.
    6. Michael Firth & Shihe Fu & Liwei Shan, 2017. "Do agglomeration economies affect the local comovement of stock returns? Evidence from China," Urban Studies, Urban Studies Journal Limited, vol. 54(5), pages 1142-1161, April.
    7. Fu, Shihe & Shan, Liwei, 2011. "Agglomeration Economies and Local Comovement of Stock Returns," MPRA Paper 31887, University Library of Munich, Germany.
    8. Sengupta, Atri & Deb, Soumya Guha & Mittal, Shashank, 2021. "The underlying motivational process behind portfolio diversification choice decisions of individual investors: An experimental design," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    9. Hoechle, Daniel & Zimmermann, Heinz, 2007. "A Generalization of the Calendar Time Portfolio Approach and the Performance of Private Investors," Working papers 2007/14, Faculty of Business and Economics - University of Basel.
    10. Bruce Kogut & Pietro Urso & Gordon Walker, 2007. "Emergent Properties of a New Financial Market: American Venture Capital Syndication, 1960-2005," Management Science, INFORMS, vol. 53(7), pages 1181-1198, July.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ysm:somwrk:ysm452. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/smyalus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.