Abstract
| Original language | English |
|---|---|
| Journal | The Financial Review |
| Volume | 54 |
| Issue number | 4 |
| Pages (from-to) | 833-856 |
| Number of pages | 24 |
| ISSN | 0732-8516 |
| DOIs | |
| Publication status | Published - Nov 2019 |
Keywords
- Aggregate loss
- Investor characteristics
- Investor sophistication
- Retail investors
- Stock holdings
- Underdiversification
Cite this
}
The Aggregate Cost of Equity Underdiversification. / Florentsen, Bjarne; Nielsson, Ulf; Raahauge, Peter; Rangvid, Jesper.
In: The Financial Review, Vol. 54, No. 4, 11.2019, p. 833-856.Research output: Contribution to journal › Journal article › Research › peer-review
TY - JOUR
T1 - The Aggregate Cost of Equity Underdiversification
AU - Florentsen, Bjarne
AU - Nielsson, Ulf
AU - Raahauge, Peter
AU - Rangvid, Jesper
PY - 2019/11
Y1 - 2019/11
N2 - We analyze equity diversification of all retail investors in a country (Denmark). We find that underdiversification is pervasive. We calculate the nationwide aggregate loss due to underdiversification and express it in absolute and expected‐return terms. The aggregate loss is large. We find that investors with low education, low income, and low wealth are more likely to underdiversify. Despite better diversification, the larger fraction of the aggregate loss nevertheless adheres to the top of the income/wealth distribution. Finally, our results indicate that underdiversification arises because investors have limited information about the benefits of diversification.
AB - We analyze equity diversification of all retail investors in a country (Denmark). We find that underdiversification is pervasive. We calculate the nationwide aggregate loss due to underdiversification and express it in absolute and expected‐return terms. The aggregate loss is large. We find that investors with low education, low income, and low wealth are more likely to underdiversify. Despite better diversification, the larger fraction of the aggregate loss nevertheless adheres to the top of the income/wealth distribution. Finally, our results indicate that underdiversification arises because investors have limited information about the benefits of diversification.
KW - Aggregate loss
KW - Investor characteristics
KW - Investor sophistication
KW - Retail investors
KW - Stock holdings
KW - Underdiversification
KW - Aggregate loss
KW - Investor characteristics
KW - Investor sophistication
KW - Retail investors
KW - Stock holdings
KW - Underdiversification
UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954921396067&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes
U2 - 10.1111/fire.12212
DO - 10.1111/fire.12212
M3 - Journal article
VL - 54
SP - 833
EP - 856
JO - The Financial Review
JF - The Financial Review
SN - 0732-8516
IS - 4
ER -