Abstract

http://ssrn.com/abstract=685363
 
 

References (36)



 
 

Citations (17)



 


 



Portfolio Concentration and the Performance of Individual Investors


Zoran Ivkovich


Michigan State University, Department of Finance

Clemens Sialm


University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER)

Scott J. Weisbenner


University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

March 13, 2005

AFA 2006 Boston Meetings Paper

Abstract:     
This paper tests whether information advantages can help explain why some individual investors concentrate their portfolios in only a few stocks. Using data on individuals' investments through a discount broker from 1991 to 1996, we find that the stock investments made by households that choose to concentrate their brokerage accounts in a few stocks outperform those made by households with more diversified accounts (especially among those with large portfolios). The excess returns of concentrated relative to diversified portfolios are stronger for stocks not included in the S&P 500 index and local stocks, potentially reflecting concentrated investors' successful exploitation of information asymmetries. Further, controlling for households' average investment abilities, a household's trades perform better when its portfolio includes fewer stocks. Total risks of concentrated household stock portfolios are larger and their Sharpe ratios are lower. However, because direct stock investments are only a small fraction of a typical concentrated stockowner's total net worth, concentrated stock holdings may improve the overall mean-variance tradeoff for some households.

Number of Pages in PDF File: 45

Keywords: Portfolio Diversification; Information Asymmetry; Return to Concentration

JEL Classification: G11, G14

working papers series


Download This Paper

Date posted: March 23, 2005  

Suggested Citation

Ivkovich, Zoran and Sialm, Clemens and Weisbenner, Scott J., Portfolio Concentration and the Performance of Individual Investors (March 13, 2005). AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=685363 or http://dx.doi.org/10.2139/ssrn.685363

Contact Information

Zoran Ivkovich
Michigan State University, Department of Finance ( email )
315 Eppley Center
East Lansing, MI 48824-1122
United States
Clemens Sialm (Contact Author)
University of Texas at Austin - McCombs School of Business ( email )
Austin, TX 78712
United States
HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Scott J. Weisbenner
University of Illinois at Urbana-Champaign - Department of Finance ( email )
340 Wohlers Hall, MC-706
1206 S. Sixth Street
Champaign, IL 61820
United States
217-333-0872 (Phone)
217-244-9867 (Fax)
HOME PAGE: http://business.illinois.edu/weisbenn/
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 1,254
Downloads: 75
References:  36
Citations:  17

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.297 seconds