Tourism Economics, 2011, 17 (6), 1257–1274 doi: 10.5367/te.2011.0086 An examination of US hotel segment strategy: diversified, concentrated or balanced? SEOKI LEE School of Tourism and Hospitality Management, Temple University, 1810 North 18th St, 314 Speakman, Philadelphia, PA 19122, USA. E-mail: seokilee@temple.edu. (Corresponding author.) QU XIAO School of Hotel and Tourism Management, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong. E-mail: hmqxiao@polyu.edu.hk. KYUNG HO KANG College of Hotel and Tourism Management, Kyung Hee University, 1 Hoegi-dong, Dongdaemun-gu, Seoul 130-701, South Korea. E-mail: study77@yahoo.co.kr. Segment diversification is a common strategy applied by hotel companies. According to previous research on the modern portfolio theory, a company can reduce risks and thus increase its value with more diversified operations. Such reasoning can certainly apply to the hotel industry in terms of its segment strategy. However, the findings are inconclusive. In particular, other literature argues for more concentrated rather than diversified operations. This study therefore examines the impacts of segment diversification on companies’ risk-adjusted performances among publicly traded US hotels. The results suggest that a moderate segment diversification strategy maximizes a company’s risk-adjusted performance. Keywords: segment diversification; US hotel industry; risk-adjusted returns; Sharpe ratio According to the modern portfolio theory (Markowitz, 1952), an investor can reduce the unsystematic risk of an equity investment by diversifying the portfolio through investment in multiple equity securities. Beyond the equity investment scheme, the theory certainly extends to a business’s operation and, in that case, diversification can be considered the investing activity that targets multiple markets (Dundas and Richardson, 1980). Applying the concept to the hotel industry, hotel firms may reduce unsystematic risk and thus optimize firm performance by diversifying their operations’ portfolios. Diversification strategies adopted by hotel companies include diversifying by location, brand,