Investor Preferences and Portfolio Selection: Is Diversification an Appropriate Strategy?

Topics:
Investor Relations
Tags:
Diversification,
Finance,
Investment,
Stock,
Strategy,
Western Michigan University
Source:
Western Michigan University

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Overview: This paper analyzes the relationship between diversification and several distributional characteristics that have risk implications for stock returns. The paper develops a flexible three-parameter distribution to model the stock returns. Using data of the current 30 DJIA stocks, it shows that an investorĘs strategy of diversification depends on the measures of risk for particular concerns. For example, investors who desire to increase positive skewness would hold a less diversified portfolio, while those who care more about extreme losses would hold a more diversified portfolio.

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Format: PDF | Size: 691KB | Date: Jul 2004 | Pages: 25

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