Do investors like to diversify? A study of Markowitz preferences

Martín Egozcue, Luis Fuentes García, Wing Keung WONG*, Ričardas Zitikis

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    40 Citations (Scopus)


    We study rankings of completely and partially diversified portfolios and also of specialized assets when investors follow so-called Markowitz preferences. It turns out that diversification strategies for Markowitz investors are more complex than in the case of risk-averse and risk-inclined investors, whose investment strategies have been extensively investigated in the literature. In particular, we observe that for Markowitz investors, preferences toward risk vary depending on their sensitivities toward gains and losses. For example, it turns out that, unlike in the case of risk-averse and risk-inclined investors, Markowitz investors might prefer investing their entire wealth in just one asset. This finding helps us to better understand some financial anomalies and puzzles, such as the well known diversification puzzle, which notes that some investors tend to concentrate on investing in only a few assets instead of choosing the seemingly more attractive complete diversification.

    Original languageEnglish
    Pages (from-to)188-193
    Number of pages6
    JournalEuropean Journal of Operational Research
    Issue number1
    Publication statusPublished - 16 Nov 2011

    Scopus Subject Areas

    • Computer Science(all)
    • Modelling and Simulation
    • Management Science and Operations Research
    • Information Systems and Management

    User-Defined Keywords

    • Diversified portfolio
    • Markowitz preferences
    • Portfolio selection
    • Risk aversion
    • Utility theory


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