Individual Decision Making and Investor Welfare

  title={Individual Decision Making and Investor Welfare},
  author={Michael J. Brennan and Walter N. Torous},
This article analyses and quanti®es the costs of suboptimal decision making for an investor with a multi-period horizon. In light of the empirical evidence that investors are too conservative and hold portfolios that are insuf®ciently diversi®ed, we evaluate the costs of suboptimal equity participation both analytically and using simulation, and also estimate the costs of suboptimal diversi®cation using simulation. We ®nd that suboptimal leverage imposes only modest costs on the investor for… CONTINUE READING
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