John Gathergood, David Hirshleifer, David Leake, Hiroaki Sakaguchi, Neil Stewart 22 June 2019
Investors who choose to build their own portfolios by stock-picking face the choice of how to diversify among stocks. The 1/N heuristic, equalising portfolio shares across stocks held, works well in practice. This column shows that investors who buy stocks often employ a different form of 1/N, dividing purchase value equally rather than maintaining a 1/N allocation. By narrowly framing their buy-day decision, these investors move their portfolios farther away from balance.
The rise of the mutual fund industry and growing number of diversified investment products – such as exchange-traded funds, closed-end funds and unit investment trusts –Read More »