• DOI:10.1016/J.JOEP.2010.08.007
Corpus ID: 145336404

Adaptive behavior leads to under-diversification

@article{Zion2010AdaptiveBL,
  title={Adaptive behavior leads to under-diversification},
  author={U. Zion and I. Erev and E. Haruvy and T. Shavit},
  journal={Journal of Economic Psychology},
  year={2010},
  volume={31},
  pages={985-995}
}

• U. Zion, I. Erev, +1 author T. Shavit
• Published 2010
• Economics
• Journal of Economic Psychology

In a given period, a diversified fund, by virtue of being a weighted average, will perform somewhere in the middle range of its components' respective performances. This means that adaptive investors who look to the past to adjust expectations about future returns will shun diversified funds. That is, adaptive reaction to feedback implies under-diversification when the investor gets complete feedback on the performance of the diversified fund as well as its components in a given period. Three… Expand

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