The Asset Allocation Decision and Investor Heterogeneity: A Puzzle?

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This paper examines portfolio allocation decisions for a large sample of demographically diverse survey respondents in light of finance theory and the recommendations of financial advisors. We investigate whether asset allocation decisions vary for respondents who differ across several dimensions including gender, home ownership, age, net worth, and psychological orientation. Sample respondents’ decisions are consistent with popular advice and finance theory. We find that only age affects the mix of risky securities. When we consider the allocation of total portfolio assets to equity, all individual characteristics except age matter. Psychological orientation contributes to our ability to explain asset allocation decisions.