Information Acquisition and Portfolio Performance
AbstractRational investors perceive correctly the value of financial information. Investment in information is therefore rewarded with a higher Sharpe ratio. Overconfident investors overstate the quality of their own information, and thus attain a lower Sharp ratio. We contrast the implications of the two models using a unique survey of customers of an Italian leading bank with portfolio data and measures of financial information. We find that the portfolio Sharpe ratio is negatively associated with investment and information. The negative correlation is stronger for men than women and for those who claim they know stocks well, arguably because these investors are more likely to be overconfident. We also show that investment in information is associated with more frequent trading, less delegation of portfolio decisions and less diversified portfolios. In each case, the effect of information is stronger for investors who, a priori, are suspected to be more overconfident.
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Bibliographic InfoPaper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 52.
Length: 67 pages
Date of creation: Oct 2006
Date of revision:
Other versions of this item:
- Guiso, Luigi & Jappelli, Tullio, 2006. "Information Acquisition and Portfolio Performance," CEPR Discussion Papers 5901, C.E.P.R. Discussion Papers.
- Luigi Guiso & Tullio Jappelli, 2007. "Information Acquisition and Portfolio Performance," Economics Working Papers ECO2007/45, European University Institute.
- Luigi Guiso & Tullio Jappelli, 2006. "Information Acquisition and Portfolio Performance," CSEF Working Papers 167, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-23 (All new papers)
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