Anderson, Anders E.S. (Swedish Institute for Financial Research)
Abstract
I explore cross-sectional portfolio performance in a sample containing 324,736 transactions conducted by 16,831 investors at an Internet discount brokerage firm during the period May 1999 to March 2002. On average, investors hold undiversified portfolios, show a strong preference for risk, and trade aggressively. I measure performance using a panel data model, and explain the cross-sectional variation using investors’ turnover, portfolio size and degree of diversification. I find that turnover is harmful to performance due to fees, and is therefore more predominant among investors with small portfolios. It is argued that the degree of diversification is a proxy for investor skill, and it has a separate and distinct positive effect on performance. These findings are helpful in explaining the overall result that investors underperform the market by around 8.5% per year on average.
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Publisher Info
Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number
25.
Length: 52 pages Date of creation: 19 Apr 2004 Date of revision: Handle: RePEc:hhs:sifrwp:0025
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Find related papers by JEL classification: C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data D14 - Microeconomics - - Household Behavior - - - Personal Finance G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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