LAUSR

Abstract In this paper, we re-examine investors’ diversification attitude in the mean-variance model from the perspective of Markowitz’s (1952) principle of diversification. Our analysis is based on diversification returns, the specific Markowitz’s (1952) principle of diversification measure in the mean-variance model. We show, regardless of whether or not the risk-free asset is available, that investors’ diversification attitude is characterized by their risk attitude in the mean-variance model with short sales. More specifically, depending on the mean-variance model inputs, investors’ diversification is an increasing function or an inverted U-shaped concave function of their risk aversion.