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A Generalization of the Calendar Time Portfolio Approach and the Performance of Private Investors

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  • Daniel Hoechle

    ()

  • Heinz Zimmermann

    ()
    (University of Basel)

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    Abstract

    We present a regression-based generalization of the calendar time portfolio approach which allowsfor the inclusion of continuous and multivariate investor or firm characteristics in the analysis. Ourmethod is simple to apply and it ensures that the statistical results are heteroscedasticity consistentand robust to very general forms of cross-sectional and temporal dependence. Furthermore, ourregression-based technique also remedies several well-known weaknesses of the traditional calendartime portfolio approach. By considering a new, unique dataset on more than 40,000 Europeanprivate investors, we illustrate empirically that erroneously ignoring cross-sectional dependenceinherent in microeconometric panel data can lead to severely biased statistical results. Moreoverwe use our method to validate some of the most popular hypotheses on the performance of privateinvestors.

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    Bibliographic Info

    Paper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2007/14.

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    Date of creation: 2007
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    Handle: RePEc:bsl:wpaper:2007/14

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    Related research

    Keywords: Performance measurement; Robust statistical inference; Cross-sectional dependence;

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    1. William N. Goetzmann & Massimo Massa & Andrei Simonov, 2005. "Portfolio Diversification, Proximity Investment and City Agglomeration," Yale School of Management Working Papers ysm452, Yale School of Management.
    2. Donald B. Keim & Ananth Madhavan, . "The Cost of Institutional Equity Trades," Rodney L. White Center for Financial Research Working Papers 8-98, Wharton School Rodney L. White Center for Financial Research.
    3. Bong-Chan Kho & René M Stulz & Francis E Warnock, 2006. "Financial globalisation, governance and the evolution of the home bias," BIS Working Papers 220, Bank for International Settlements.
    4. Massa, Massimo & Simonov, Andrei, 2004. "Hedging, Familiarity and Portfolio Choice," CEPR Discussion Papers 4789, C.E.P.R. Discussion Papers.
    5. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    6. James Poterba, 2004. "The Impact of Population Aging on Financial Markets," NBER Working Papers 10851, National Bureau of Economic Research, Inc.
    7. Dahlquist, Magnus & Engström, Stefan & Söderlind, Paul, 2000. "Performance and Characteristics of Swedish Mutual Funds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(03), pages 409-423, September.
    8. Mandelker, Gershon, 1974. "Risk and return: The case of merging firms," Journal of Financial Economics, Elsevier, vol. 1(4), pages 303-335, December.
    9. Mark L. Mitchell & Erik Stafford, 1997. "Managerial Decisions and Long-Term Stock Price Performance," CRSP working papers 453, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    10. Ivković, Zoran & Sialm, Clemens & Weisbenner, Scott, 2008. "Portfolio Concentration and the Performance of Individual Investors," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(03), pages 613-655, September.
    11. Daniel Dorn & Gur Huberman, 2005. "Talk and Action: What Individual Investors Say and What They Do," Review of Finance, Springer, vol. 9(4), pages 437-481, December.
    12. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    13. Alok Kumar & Charles M.C. Lee, 2006. "Retail Investor Sentiment and Return Comovements," Journal of Finance, American Finance Association, vol. 61(5), pages 2451-2486, October.
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