Against Diversification: A Suggested Strategy for the Know-Something Investor

Doctoral Dissertation
Thumbnail

Abstract

Behavioral finance studies reinforce the idea of market inefficiency, suggesting that it is possible for informed investors to produce above-average returns on their investments. For “know-something” investors, portfolio diversification reduces risk at the expense of maximizing return, defeating the main purpose of investing in stocks. In psychological measurement terms, this practice resembles increasing a scale’s reliability at the expense of its validity. To illustrate this concept, 20 stockbrokers each created a portfolio of up to 20 stocks, separating their “top picks” from others in their portfolio. Results showed that portfolios of brokers’ “top picks” outperformed their diversified portfolios after a one-year period. While not statistically significant, results likely have great practical significance, and thus speak to the value of future studies on this topic.

Attributes

Attribute NameValues
URN
  • etd-07222010-143158

Author Chaunce R. Windle
Advisor George Howard
Contributor Anita Kelly, Committee Member
Contributor George Howard, Committee Chair
Contributor Susan Steibe-Pasalich, Committee Member
Contributor Scott Maxwell, Committee Member
Degree Level Doctoral Dissertation
Degree Discipline Psychology
Degree Name PhD
Defense Date
  • 2010-07-14

Submission Date 2010-07-22
Country
  • United States of America

Subject
  • diversify

  • psychology

  • behavioral finance

  • stock

  • portfolio

Publisher
  • University of Notre Dame

Language
  • English

Record Visibility Public
Content License
  • All rights reserved

Departments and Units
Catalog Record

Files

Please Note: You may encounter a delay before a download begins. Large or infrequently accessed files can take several minutes to retrieve from our archival storage system.