Graduation Year

2024

Document Type

Dissertation

Degree

D.B.A.

Degree Granting Department

Business Administration

Major Professor

Robert Hammond, D.B.A

Co-Major Professor

Sunil Mithas, Ph.D.

Committee Member

Matthew Mullarkey, Ph.D.

Committee Member

Alan Hevner, Ph.D.

Keywords

Asset allocation, diversification, model, optimization, process controls, risk tolerance

Abstract

Using a unique set of data obtained from interviews of financial professionals, this study aimed to explore the heterogeneity among portfolios of mutual funds and exchange-traded funds recommended by financial professionals for fictional client scenarios that control for investor risk and asset allocation. First, the extent to which the revealed asset allocation matched the elicited asset allocation was examined. Next, the portfolios were examined relative to diversification within the stock and bond holdings. Portfolios were examined on the basis of hypothetical historical risk and return. Lastly, comments provided by financial professionals about their security selections and investment approach were presented. The findings indicated that, even controlling for investor risk profile and asset allocation, the risk and return for the same client scenario varied considerably among financial professionals. Findings indicated that while the average revealed asset allocations were very similar to the elicited asset allocations, much variation existed for each revealed asset class and within each revealed asset class. Lastly, the study indicated an indeterminate level of association between the portfolio characteristics and the demographics and business practices of financial professionals. The implications of this study are investment firms and professionals need to be aware of the impact of investment selections on different dimensions of diversification and cognizant of the combined impact of those dimensions of diversification on the resulting risk and return for a client. This research extends academic research of investment portfolios and practices of financial professionals by engaging financial professionals directly to obtain specific investment recommendations and examining portfolios within risk profile categories rather than between risk profile categories.

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