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Domain-dependent diversification: The influence of gain–loss domain on correlation choice

Lookup NU author(s): Professor Darren DuxburyORCiD

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This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).

Abstract

Despite compelling evidence of widespread gain-loss-domain-dependent behavior, research ondomain-dependent diversification is scarce. We recruited 251 experienced US retail investorsto participate in a controlled experiment with the task to select portfolios that differ in assetcorrelation and hence diversification benefits in both the gain and the loss domain. We findevidence of domain-dependent diversification, both unconditional and conditional on portfoliopreferences. Consistent with a loss-attention hypothesis, diversification errors are not observedin the loss domain, but are clearly present in the gain domain.

Publication metadata

Author(s): Borsboom C, Duxbury D, Nieber A, Zeisberger S

Publication type: Article

Publication status: Published

Journal: Journal of Economic Behavior & Organization

Year: 2024

Volume: 227

Print publication date: 01/11/2024

Online publication date: 18/09/2024

Acceptance date: 20/07/2024

Date deposited: 18/09/2024

ISSN (print): 0167-2681

Publisher: Elsevier BV

URL: https://doi.org/10.1016/j.jebo.2024.106681

DOI: 10.1016/j.jebo.2024.106681

Data Access Statement: https://osf.io/qavmc/

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