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}
}
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
24 Citations

Figures from this paper

Learning and the Economics of Small Decisions
...
1
2
3
...

References

SHOWING 1-10 OF 43 REFERENCES
Model Misspecification and Under-Diversification
Risk Taking by Mutual Funds as a Response to Incentives
The Diversification Puzzle
Household Portfolio Diversification: A Case for Rank-Dependent Preferences
How Many Stocks Make a Diversified Portfolio
Reinforcement Learning and Savings Behavior
Do Investors Trade Too Much
...
1
2
3
4
5
...