Is diversification always optimal?

Jacquelyn E. Humphrey*, Karen L. Benson, Rand K.Y. Low, Wei Lun Lee

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

7 Citations (Scopus)

Abstract

Finance theory and recent literature suggest that investors should diversify their retirement savings across a number of funds. However, the Australian government encourages investors to consolidate retirement savings into just one fund. Using a number of optimization techniques, we investigate which of these two actions would result in the best outcome for investors in terms of risk and return. We find that in the majority of cases investors would be better off not diversifying their holdings; mainly because superannuation funds cannot be short sold. Consolidation therefore does appear to be the optimal strategy for the average superannuation investor.

Original languageEnglish
Pages (from-to)521-532
Number of pages12
JournalPacific Basin Finance Journal
Volume35
DOIs
Publication statusPublished - 1 Nov 2015
Externally publishedYes

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    Humphrey, J. E., Benson, K. L., Low, R. K. Y., & Lee, W. L. (2015). Is diversification always optimal? Pacific Basin Finance Journal, 35, 521-532. https://doi.org/10.1016/j.pacfin.2015.09.003