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Portfolio Concentration and the Performance of Individual Investors

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Author Info
Ivkovi?, Zoran
Sialm, Clemens
Weisbenner, Scott

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Abstract

This paper tests whether information advantages help explain why some individual investors concentrate their stock portfolios in a few stocks. Stock investments made by households that choose to concentrate their brokerage accounts in a few stocks outperform those made by households with more diversified accounts (especially among those with large portfolios). Excess returns of concentrated relative to diversified portfolios are stronger for stocks not included in the S P 500 index and local stocks, potentially reflecting concentracted investors' successful exploitation of information asymmetries. Controlling for households' average investment abilities, their trades and holdings perform better when their portfolios include fewer stocks.

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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 43 (2008)
Issue (Month): 03 (September)
Pages: 613-655
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:jfinqa:v:43:y:2008:i:03:p:613-655_00

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ning Zhu, 2002. "The Local Bias of Individual Investors," Yale School of Management Working Papers ysm272, Yale School of Management. [Downloadable!]
  2. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04. [Downloadable!] (restricted)
  3. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. William N. Goetzmann & Alok Kumar, 2001. "Equity Portfolio Diversification," NBER Working Papers 8686, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2004. "On the Industry Concentration of Actively Managed Equity Mutual Funds," NBER Working Papers 10770, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Blume, Marshall E & Friend, Irwin, 1975. "The Asset Structure of Individual Portfolios and Some Implications for Utility Functions," Journal of Finance, American Finance Association, vol. 30(2), pages 585-603, May. [Downloadable!] (restricted)
  7. Joshua D. Coval & Tobias J. Moskowitz, 2001. "The Geography of Investment: Informed Trading and Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 811-841, August. [Downloadable!] (restricted)
  8. JOSHUA D. COVAL & David Hirshleifer & TYLER G. SHUMWAY, 2004. "Can Individual Investors Beat the Market?," Finance 0412005, EconWPA. [Downloadable!]
  9. Kelly, Morgan, 1995. "All their eggs in one basket: Portfolio diversification of US households," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 87-96, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luigi Guiso & Tullio Jappelli, 2007. "Information Acquisition and Portfolio Performance," Economics Working Papers ECO2007/45, European University Institute. [Downloadable!]
    Other versions:
  2. Calvet, Laurent E. & Campbell, John Y. & Sodini, Paolo, 2006. "Down or Out: Assessing The Welfare Costs of Household Investment Mistakes," Working Paper Series 195, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
    Other versions:
  3. Juan Carols Hatchondo, 2005. "A quantitative study of the role of wealth inequality on asset prices," Working Paper 05-12, Federal Reserve Bank of Richmond. [Downloadable!]
  4. Juan Carlos Hatchondo, 2005. "Asymmetric information and the lack of international portfolio diversification," Working Paper 05-07, Federal Reserve Bank of Richmond. [Downloadable!]
  5. Stijn Van Nieuwerburgh & Laura Veldkamp, 2008. "Information Acquisition and Under-Diversification," NBER Working Papers 13904, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Laura Veldkamp & Stijn Van Nieuwerburgh, 2004. "Information Immobility and the Home Bias Puzzle," Working Papers 04-32, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
    Other versions:
  7. George M. Korniotis & Alok Kumar, 2008. "Do behavioral biases adversely affect the macro-economy?," Finance and Economics Discussion Series 2008-49, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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