The Impact of Financial Advisors on the Stock Portfolios of Retail Investors
University of Groningen - Faculty of Economics and Business - Department of Economics, Econometrics & Finance
University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group
August 29, 2012
Midwest Finance Association 2013 Annual Meeting Paper
This study investigates the impact of financial advisors on portfolio returns, risk, trading, and diversification using a large data set of individual Dutch equity investors, with random assignment to specific advisors. We confirm recent experimental results on the benefits of advisory interventions that control for moral hazard behavior and endogeneity as a result of self-selection. Advice improves risk-adjusted equity returns and reduces risk. In addition, advisors reduce trading activity, as proxied by the frequency of trades. This study is unique in terms of the data set, the focus on individual stocks, and the use of the Hausman-Taylor panel estimation technique.
Number of Pages in PDF File: 34
Keywords: Individual Investor Portfolio Performance, Financial Advice, Hausman-Taylor Model
JEL Classification: G11, D14, G24working papers series
Date posted: September 1, 2012 ; Last revised: January 22, 2013
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