Keynes Meets Markowitz: The Trade-Off Between Familiarity and Diversification

References

• Ahn D., Choi S., Gale D., Kariv S. Estimating ambiguity aversion in a portfolio choice experiment. (2010) . Working paper, University of California, Berkeley, BerkeleyGoogle Scholar
• Anderson E. W., Ghysels E., Juergens J. L. The impact of risk and uncertainty on expected returns. J. Financial Econom. (2009) 94(2):233–263Crossref, Google Scholar
• Barber B. M., Odean T. Trading is hazardous to your wealth: The common stock investment performance of individual investors. J. Finance (2000) 55(2):773–806Crossref, Google Scholar
• Barberis N., Huang M. Stocks as lotteries: The implications of probability weighting for security prices. Amer. Econom. Rev. (2008) 98(5):2066–2100Crossref, Google Scholar
• Benartzi S. Excessive extrapolation and the allocation of 401(k) accounts to company stock. J. Finance (2001) 56(5):1747–1764Crossref, Google Scholar
• Best M. J., Grauer R. E. On the sensitivity of mean-variance-efficient portfolios to changes in asset means: Some analytical and computational results. Rev. Financial Stud. (1991) 4(2):315–342Crossref, Google Scholar
• Bewley T. F. Knightian decision theory and econometric inference. J. Econom. Theory (2012) . ForthcomingGoogle Scholar
• Blume M., Friend I. The asset structure of individual portfolios and some implications for utility functions. J. Finance (1975) 30(2):585–603Crossref, Google Scholar
• Bossaerts P., Ghirardato P., Guarnaschelli S., Zame W. R. Ambiguity in asset markets: Theory and experiment. Rev. Financial Stud. (2010) 23(4):1325–1359Crossref, Google Scholar
• Brennan M. J. The optimal number of securities in a risky asset portfolio when there are fixed costs of transacting: Theory and some empirical results. J. Financial Quant. Anal. (1975) 10(3):483–496Crossref, Google Scholar
• Brunnermeier M. K., Pedersen L. H. Market liquidity and funding liquidity. Rev. Financial Stud. (2009) 22(3):2201–2199Crossref, Google Scholar
• Buffett W. Letter to shareholders. (1991) . Retrieved May 15, 2011, http://www.berkshirehathaway.com/letters/1991.htmlGoogle Scholar
• Calvet L. E., Campbell J. Y., Sodini P. Down or out: Assessing the welfare costs of household investment mistakes. J. Political Econom. (2007) 115(5):707–747Crossref, Google Scholar
• Campbell J. Y. Household finance. J. Finance (2006) 61(4):1553–1604Crossref, Google Scholar
• Cao H. H., Wang T., Zhang H. H. Model uncertainty, limited market participation, and asset prices. Rev. Financial Stud. (2005) 18(4):1219–1251Crossref, Google Scholar
• Chan L. K. C., Karceski J., Lakonishok J. On portfolio optimization: Forecasting covariances and choosing the risk model. Rev. Financial Stud. (1999) 12(5):937–974Crossref, Google Scholar
• Chen H., Ju N., Miao J. Dynamic asset allocation with ambiguous return predictability. (2009) . Working paper, Boston University, BostonGoogle Scholar
• Chen Z., Epstein L. G. Ambiguity, risk, and asset returns in continuous time. Econometrica (2002) 70(4):1403–1443Crossref, Google Scholar
• Cohen L. Loyalty-based portfolio choice. Rev. Financial Stud. (2009) 22(3):1213–1245Crossref, Google Scholar
• Conine T. E., Tamarkin M. J. On Diversification given asymmetry in returns. J. Finance (1981) 36(5):1143–1155Crossref, Google Scholar
• Cooper I., Kaplanis E. Home bias in equity portfolios, inflation hedging and international capital market equilibrium. Rev. Financial Stud. (1994) 7(1):45–60Crossref, Google Scholar
• Coval J., Moskovitz T. Home bias at home: Local equity preference in domestic portfolios. J. Finance (1999) 54(6):2045–2073Crossref, Google Scholar
• DeMiguel V., Garlappi L., Uppal R. Optimal versus naive diversification: How inefficient is the 1/N portfolio strategy? Rev. Financial Stud. (2009) 22(5):1915–1953Crossref, Google Scholar
• Dow J., Werlang S. R. d. C. Uncertainty aversion, risk aversion, and the optimal choice of portfolio. Econometrica (1992) 60(1):197–204Crossref, Google Scholar
• Easley D., O'Hara M. Ambiguity and nonparticipation: The role of regulation. Rev. Financial Stud. (2009) 22(5):1817–1844Crossref, Google Scholar
• Easley D., O'Hara M. Liquidity and valuation in an uncertain world. J. Financial Econom. (2010) 97(1):1–12Crossref, Google Scholar
• Economist, The The other-worldly philosophers. (2009) July 16). http://www.economist.com/node/14030288?story_id=14030288Google Scholar
• Epstein L. G., Miao J. A two-person dynamic equilibrium under ambiguity. J. Econom. Dynam. Control (2003) 27(7):1253–1288Crossref, Google Scholar
• Epstein L. G., Schneider M. Learning under ambiguity. Rev. Econom. Stud. (2007) 74(4):1275–1303Crossref, Google Scholar
• Epstein L. G., Wang T. Intertemporal asset pricing under knightian uncertainty. Econometrica (1994) 62(2):283–322Crossref, Google Scholar
• Feng L., Seasholes M. S. Correlated trading and location. J. Finance (2004) 59(5):2117–2144Crossref, Google Scholar
• Fox C., Tversky A. Ambiguity aversion and comparative ignorance. Quart. J. Econom. (1995) 110(3):585–603Crossref, Google Scholar
• French K., Poterba J. Japanese and U.S. cross-border common stock investments. J. Japanese Internat. Economies (1990) 4(4):476–493Crossref, Google Scholar
• Frost P. A., Savarino J. E. An empirical bayes approach to efficient portfolio selection. J. Financial Quant. Anal. (1986) 21(3):293–305Crossref, Google Scholar
• Frost P. A., Savarino J. E. For better performance constrain portfolio weights. J. Portfolio Management (1988) 15(1):29–34Crossref, Google Scholar
• Garlappi L., Uppal R., Wang T. Portfolio selection with parameter and model uncertainty: A multi-prior approach. Rev. Financial Stud. (2007) 20(1):41–81Crossref, Google Scholar
• Gilboa I., Schmeidler D. Maxmin expected utility theory with non-unique prior. J. Math. Econom. (1989) 18(2):141–153Crossref, Google Scholar
• Goetzman W. N., Kumar A. Equity portfolio diversification. Rev. Finance (2008) 12(3):433–463Crossref, Google Scholar
• Grinblatt M., Keloharju M. How distance, language, and culture influence stockholdings and trades. J. Finance (2001) 56(3):1053–1073Crossref, Google Scholar
• Harvey C. R., Siddique A. Conditional skewness in asset pricing tests. J. Finance (2000) 55(3):1263–1295Crossref, Google Scholar
• Hayashi T., Miao J. Intertemporal substitution and recursive smooth ambiguity preferences. Theoret. Econom. (2011) 6(3):423–472Crossref, Google Scholar
• Heath C., Tversky A. Preferences and beliefs: Ambiguity and competence in choice under uncertainty. J. Risk Uncertainty (1991) 4(1):5–28Crossref, Google Scholar
• Huberman G. Familiarity breeds investment. Rev. Financial Stud. (2001) 14(3):659–680Crossref, Google Scholar
• Huberman G., Jiang W. Offering vs. choice by 401(k) plan participants: Equity exposure and number of funds. J. Finance (2006) 61(2):763–801Crossref, Google Scholar
• Illeditisch P. K. Ambiguous information, risk aversion, and asset pricing. (2009) . Working paper, Wharton School, University of Pennsylvania, PhiladelphiaCrossref, Google Scholar
• Isidore C. Bernanke's bucks. (2005) . CNNMoney.com (October 26), http://money.cnn.com/2005/10/26/news/newsmakers/fed_bernanke_portfolio/index.htmGoogle Scholar
• Ivković Z., Weisbenner S. Local does as local is: Information content of the geography of individual investors' common stock investments. J. Finance (2005) 60(1):267–306Crossref, Google Scholar
• Ju N., Miao J. Ambiguity, learning, and asset returns. (2010) . Working paper, Boston University, BostonGoogle Scholar
• Keynes J. M.A Treatise on Probability (1921) 1st ed.(MacMillan, London) Google Scholar
• Keynes J. M., Johnson E., Moggridge D. Keynes as an investor. The Collected Writings of John Maynard Keynes (1983) XII(Cambridge University Press, New York) Economic Articles and Correspondence; Investment and EditorialChap. ICrossref, Google Scholar
• Klibanoff P., Marinacci M., Mukerji S. A smooth model of decision making under ambiguity. Econometrica (2005) 73(6):1849–1892Crossref, Google Scholar
• Knight F. H.Risk, Uncertainty and Profit (1921) (Houghton Mifflin, Boston) Google Scholar
• Kraus A., Litzenberger R. H. Skewness preference and the valuation of risk assets. J. Finance (1976) 31(4):1085–1100Google Scholar
• LeRoy S. F., Singell L. D. Knight on risk and uncertainty. J. Political Econom. (1987) 95(2):395–406Crossref, Google Scholar
• Litterman R.Modern Investment Management: An Equilibrium Approach (2003) (Wiley, New York) Google Scholar
• Liu H. Solvency constraint, underdiversification, and idiosyncratic risks. (2010) . Working paper, Olin Business School, Washington University, St. LouisGoogle Scholar
• Lo A. W. Risk management for hedge funds: Introduction and overview. Financial Analysts J. (2001) 57(6):16–33Crossref, Google Scholar
• Loeb G. M.The Battle for Investment Survival (1965) (John Wiley & Sons, New York) Google Scholar
• Longin F., Solnik B. Is the correlation in international equity returns constant: 1960–1990? J. Internat. Money Finance (1995) 14(1):3–26Crossref, Google Scholar
• Maenhout P. J. Robust portfolio rules and asset pricing. Rev. Financial Stud. (2004) 17(4):951–983Crossref, Google Scholar
• Markowitz H. M. Portfolio selection. J. Finance (1952) 7(1):77–91Google Scholar
• Markowitz H. M.Portfolio Selection: Efficient Diversification of Investments (1959) (Wiley, New York) Google Scholar
• Massa M., Simonov A. Hedging, familiarity and portfolio choice. Rev. Financial Stud. (2006) 19(2):633–685Crossref, Google Scholar
• Mehra R., Prescott E. C. The equity premium: A puzzle. J. Monetary Econom. (1985) 15(2):145–161Crossref, Google Scholar
• Merton R. C. On estimating the expected return on the market: An exploratory investigation. J. Financial Econom. (1980) 8(4):323–361Crossref, Google Scholar
• Merton R. C. A simple model of capital market equilibrium with incomplete information. J. Finance (1987) 42(3):483–510Crossref, Google Scholar
• Meulbroek L. Company stock in pension plans: How costly is it? J. Law Econom. (2005) 48(2):443–474Crossref, Google Scholar
• Michaud R. O. The Markowitz optimization enigma: Is “optimized” optimal? Financial Analysts J. (1989) 45(1):31–42Crossref, Google Scholar
• Mitchell O., Utkus S. Company stock and retirement plan diversification. (2002) . Pension Research Council Working Paper 2002-4, The Wharton School, University of Pennsylvania, PhiladelphiaCrossref, Google Scholar
• Mitton T., Vorkink K. Equilibrium underdiversification and the preference for skewness. Rev. Financial Stud. (2007) 20(4):1255–1288Crossref, Google Scholar
• Odean T. Do investors trade too much? Amer. Econom. Rev. (1999) 89(5):1279–1298Crossref, Google Scholar
• Polkovnichenko V. Household portfolio diversification: A case for rank dependent preferences. Rev. Financial Stud. (2005) 18(4):1467–1502Crossref, Google Scholar
• Poon S., Rockinger M., Tawn J. A. Extreme value dependence in financial markets: Diagnostics, models, and financial implications. Rev. Financial Stud. (2004) 17(2):581–610Crossref, Google Scholar
• Routledge B., Zin S. Model uncertainty and liquidity. Rev. Econom. Dynam. (2009) 12(4):543–566Crossref, Google Scholar
• Sarkissian S., Schill M. J. The overseas listing decision: New evidence of proximity preference. Rev. Financial Stud. (2004) 17(3):769–809Crossref, Google Scholar
• Scholes M. Crisis and risk management. Amer. Econom. Rev. (2000) 90(2):17–21Crossref, Google Scholar
• Sharpe W. F.Portfolio Theory and Capital Markets (1970) (McGraw-Hill, New York) Google Scholar
• Shefrin H., Statman M. Behavioral portfolio theory. J. Financial Quant. Anal. (2000) 35(2):127–151Crossref, Google Scholar
• Siegel J. Ben Bernanke's favorite stock. (2005) . Yahoo!Finance.com (November 21), http://finance.yahoo.com/expert/article/futureinvest/1566Google Scholar
• Uppal R., Wang T. Model misspecification and underdiversification. J. Finance (2003) 58(6):2465–2486Crossref, Google Scholar
• Van Nieuwerburgh S., Veldkamp L. Inside information and the own company stock puzzle. J. Eur. Econom. Assoc. Papers Proc. (2006) 4(2–3):623–633Crossref, Google Scholar
• Van Nieuwerburgh S., Veldkamp L. Information immobility and the home bias puzzle. J. Finance (2009) 64(3):1187–1215Crossref, Google Scholar
• Van Nieuwerburgh S., Veldkamp L. Information acquisition and portfolio under-diversification. Rev. Econom. Stud. (2010) 77(2):779–805Crossref, Google Scholar
• Vayanos D. Flight to quality, flight to liquidity, and the pricing of risk. (2004) . Working paper, London School of Economics, LondonCrossref, Google Scholar
• Vissing-Jorgensen A. Perspectives on behavioral finance: Does “irrationality” disappear with wealth? Evidence from expectations and actions. NBER Macroeconomics Annual (2003) 18:139–193Crossref, Google Scholar
• Welch I. Views of financial economists on the equity premium and other issues. J. Bus. (2000) 73(4):501–537Crossref, Google Scholar