Trading and Under-Diversification

Anderson, Anders

doi:10.2139/ssrn.871435

Abstract

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Trading and Under-Diversification

Anders Anderson

Institute for Financial Research

April 25, 2008

Forthcoming, Review of Finance
AFA 2007 Chicago Meetings Paper
EFA 2007 Ljubljana Meetings Paper

Abstract:
This paper documents a link between trading and diversication by using detailed trading records from a Swedish discount broker matched to individual tax records. Investors' diversification is measured by stake size, defined as the fraction of their risky financial wealth invested in individual stocks at the broker under study. High stake investors have concentrated portfolios, trade more, and achieves lower trading performance. They share several features with those who trade excessively: they have lower income, wealth, age, and education, suggesting that they lack investment expertise. The results directly imply that trading losses in the cross-section mainly are borne by those who can least afford them.

Number of Pages in PDF File: 52

Keywords: Investor behavior, stock trading, overconfidence, under-diversification

JEL Classification: G11, D14, C24

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Date posted: January 16, 2006 ; Last revised: July 10, 2012

Suggested Citation

Anderson, Anders, Trading and Under-Diversification (April 25, 2008). Forthcoming, Review of Finance; AFA 2007 Chicago Meetings Paper; EFA 2007 Ljubljana Meetings Paper. Available at SSRN: http://ssrn.com/abstract=871435 or http://dx.doi.org/10.2139/ssrn.871435

Contact Information

Anders Anderson (Contact Author)

Institute for Financial Research ( email )

Drottninggatan 89
SE-113 59 Stockholm, SE-113 60
Sweden