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The Impact of Financial Advisors on the Stock Portfolios of Retail Investors

39 Pages Posted: 15 Mar 2012 Last revised: 12 Dec 2014

Marc Kramer

University of Groningen - Faculty of Economics and Business - Department of Economics, Econometrics & Finance

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Date Written: March 14, 2012

Abstract

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.

Keywords: Individual Investor Portfolio Performance, Financial Advice

JEL Classification: G11, D14, G24

Suggested Citation

Kramer, Marc and Lensink, Robert, The Impact of Financial Advisors on the Stock Portfolios of Retail Investors (March 14, 2012). Available at SSRN: https://ssrn.com/abstract=2021883 or http://dx.doi.org/10.2139/ssrn.2021883

Marc Kramer (Contact Author)

University of Groningen - Faculty of Economics and Business - Department of Economics, Econometrics & Finance ( email )

Postbus 72
9700 AB Groningen
Netherlands

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

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