Turnover, Account Value and Diversification of Real Traders: Evidence of Collective Portfolio Optimizing Behavior

26 Pages Posted: 16 Jun 2010 Last revised: 26 Jun 2010

See all articles by David Morton de Lachapelle

David Morton de Lachapelle

Swissquote Bank; Ecole Polytechnique Fédérale de Lausanne

Damien Challet

CentraleSupélec; Encelade Capital SA

Date Written: June 15, 2010

Abstract

Despite the availability of very detailed data on financial market, agent-based modeling is hindered by the lack of information about real trader behavior. This makes it impossible to validate agent-based models, which are thus reverse-engineering attempts. This work is a contribution to the building of a set of stylized facts about the traders themselves. Using the client database of Swissquote Bank SA, the largest on-line Swiss broker, we find empirical relationships between turnover, account values and the number of assets in which a trader is invested. A theory based on simple mean-variance portfolio optimization that crucially includes variable transaction costs is able to reproduce faithfully the observed behaviors. We finally argue that our results bring into light the collective ability of a population to construct a mean-variance portfolio that takes into account the structure of transaction costs.

Keywords: Brokerage Data, Collective Behavior, Mean-Variance Portfolio, Non-Linear Transaction Costs, Turnover

JEL Classification: G11, G24

Suggested Citation

Morton de Lachapelle, David and Challet, Damien, Turnover, Account Value and Diversification of Real Traders: Evidence of Collective Portfolio Optimizing Behavior (June 15, 2010). Available at SSRN: https://ssrn.com/abstract=1625227 or http://dx.doi.org/10.2139/ssrn.1625227

David Morton de Lachapelle

Swissquote Bank ( email )

Ch. de la Crétaux 33
Gland, Vaud 1196
Switzerland
+41 21 999 94 11 (Phone)

HOME PAGE: http://www.swissquote.ch/index_e.html

Ecole Polytechnique Fédérale de Lausanne ( email )

Lausanne, 1015
Switzerland

HOME PAGE: http://people.epfl.ch/david.morton

Damien Challet (Contact Author)

CentraleSupélec ( email )

Labo MICS
3, rue Joliot-Curie
Gif-sur-Yvette, 91192
France

Encelade Capital SA ( email )

Chemin du Bochet 8
Sulpice, 1025
Switzerland

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