Just Unlucky? – A Bootstrapping Simulation to Measure Skill in Individual Investors’ Investment Performance

42 Pages Posted: 20 Mar 2012 Last revised: 12 Nov 2015

Steffen Meyer

Leibniz Universität Hannover

Dennis Schmoltzi

Goethe University Frankfurt - Department of Finance

Christian Stammschulte

Goethe University Frankfurt - House of Finance

Simon Kaesler

Goethe University Frankfurt - Department of Finance

Benjamin Loos

University of Mannheim - Area Banking, Finance, and Insurance

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE

Date Written: June 6, 2012

Abstract

Few studies have focused on the measurement of individual investors’ investment performance and more extensive research has been conducted on biases and investment mistakes – such as the disposition effect, security selection bias and lacking ability of market timing. No study so far has focused on measuring whether the realized performance was driven by skill or mere luck. This paper disentangles skill and luck in individual investors’ investment performance using a four-factor model and apply bootstrapping simulations pioneered in the mutual fund literature to distinguish skill from luck. We use a comprehensive dataset of 8,621 individual investor portfolios from a German online broker, spanning a timeframe from September 2005 to April 2010. We find that 89% of individual investors exhibit negative skill (α ≤ 0) when measured on a gross basis and 91% when considering returns net of costs and expenses. An individual investor with an average level of risk-taking depicts an investment performance of approximately -7.5% per year for gross returns and of -8.5% per year for net returns.

Keywords: individual investors, retail investors, portfolio performance, investment policy, bootstrapping

JEL Classification: D14, G11

Suggested Citation

Meyer, Steffen and Schmoltzi, Dennis and Stammschulte, Christian and Kaesler, Simon and Loos, Benjamin and Hackethal, Andreas, Just Unlucky? – A Bootstrapping Simulation to Measure Skill in Individual Investors’ Investment Performance (June 6, 2012). Available at SSRN: https://ssrn.com/abstract=2023588 or http://dx.doi.org/10.2139/ssrn.2023588

Steffen Meyer (Contact Author)

Leibniz Universität Hannover ( email )

Königsworther Platz 1
Hannover, DE 30167
Germany

Dennis Schmoltzi

Goethe University Frankfurt - Department of Finance ( email )

Mertonstr. 17
Frankfurt, 60054
Germany

Christian Stammschulte

Goethe University Frankfurt - House of Finance ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Simon Kaesler

Goethe University Frankfurt - Department of Finance ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Benjamin Loos

University of Mannheim - Area Banking, Finance, and Insurance ( email )

L5, 2
Mannheim, 68131
Germany

HOME PAGE: http://weber.bwl.uni-mannheim.de/en/faculty/dr_benjamin_loos/

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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