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Investment in Financial Information and Portfolio Performance

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Abstract

Rational investors perceive correctly the value of financial information. Investment in information is therefore associated with a higher expected portfolio return and Sharpe ratio. Overconfident investo rs overstate the quality of their own information, and thus investment in information is associated with a lower expected Sharpe ratio despite they realize higher average returns. We contrast the implications of these two models using two unique surveys of customers of a leading Italian bank with portfolio data and measures of financial information. We find that the investment in information is positively associated with returns to financial wealth and negatively to Sharpe ratio. The latter falls with proxies for overconfidence. We relate these findings to the wealth inequality debate.

Suggested Citation

  • Luigi Guiso & Tullio Jappelli, 2018. "Investment in Financial Information and Portfolio Performance," CSEF Working Papers 501, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:501
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    References listed on IDEAS

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    1. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2009. "Fight or Flight? Portfolio Rebalancing by Individual Investors," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 301-348.
    2. Marcin Kacperczyk & Jaromir B. Nosal & Luminita Stevens, 2014. "Investor Sophistication and Capital Income Inequality," NBER Working Papers 20246, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Zinman, Jonathan, 2009. "Debit or credit?," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 358-366, February.

    More about this item

    Keywords

    Portfolio Choice; Information; Overconfidence;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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