Keeping up with the Joneses and optimal diversification

Moshe Levy*, Haim Levy

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


Peer-effects have been shown to affect behavior, and can generally lead to investments choices that are mean-variance inefficient. This paper analyzes optimal diversification with peer-effects. We show that if individuals have keeping-up with the Joneses preferences and they take their peer-group reference as the market portfolio, Markowitz's mean-variance efficiency analysis and the CAPM equilibrium are intact. This holds for any keeping-up preferences, as well as heterogeneous combinations of such preferences. These results also extend to the Merton-Levy segmented-market model.

Original languageAmerican English
Pages (from-to)29-38
Number of pages10
JournalJournal of Banking and Finance
StatePublished - 1 Sep 2015

Bibliographical note

Publisher Copyright:
© 2015 Elsevier B.V.


  • Capital Asset Pricing Model (CAPM)
  • Correlation loving
  • Diversification
  • Keeping-up with the Joneses
  • Mean-variance efficiency analysis
  • Peer-effects
  • Stochastic dominance


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