How Diversified are Household Asset Portfolios?
Households face constraints that limit the extent to which they can optimally diversify their asset portfolios in line
with Markowitz portfolio theory. This study measures the diversification of Australian households using four alternative
measures better suited to households and successive waves of the Household, Income, and Labor Dynamics in Australia
(HILDA) Survey. We examine how these measures of diversification vary across time and the population. We find that
diversification is generally poor and varies significantly by wealth, age, household structure, and financial stance and risk.
Index Terms - Asset portfolios, Diversification, Household socioeconomic and demographic characteristics, Financial