Achieving Portfolio Diversification for Individuals with Low Financial Sustainability | Zendy

Yongjae Lee | Zendy; Woo Chang Kim | Zendy; Jang Ho Kim | Zendy

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Achieving Portfolio Diversification for Individuals with Low Financial Sustainability

Author(s) -

Yongjae Lee,

Woo Chang Kim,

Jang Ho Kim

Publication year - 2020

Publication title -

sustainability

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.612

H-Index - 85

ISSN - 2071-1050

DOI - 10.3390/su12177073

Subject(s) - diversification (marketing strategy) , portfolio , financial stability , sustainability , economics , construct (python library) , investment strategy , portfolio optimization , investment (military) , modern portfolio theory , business , financial economics , financial risk , finance , financial system , computer science , ecology , marketing , politics , market liquidity , programming language , law , political science , biology

While many individuals make investments to gain financial stability, most individual investors hold under-diversified portfolios that consist of only a few financial assets. Lack of diversification is alarming especially for average individuals because it may result in massive drawdowns in their portfolio returns. In this study, we analyze if it is theoretically feasible to construct fully risk-diversified portfolios even for the small accounts of not-so-rich individuals. In this regard, we formulate an investment size constrained mean-variance portfolio selection problem and investigate the relationship between the investment amount and diversification effect.

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