Investor Sophistication and Asset Prices

55 Pages Posted: 10 Dec 2012 Last revised: 19 Jul 2017

See all articles by George M. Korniotis

George M. Korniotis

University of Miami; Miami Business School; University of Miami - Behavioral Decision Making Cluster

Alok Kumar

University of Miami - Miami Herbert Business School

Jeremy K. Page

Brigham Young University

Date Written: July 18, 2017

Abstract

We show that geographical variation in the level of investor sophistication influences local asset prices. Investors in less sophisticated regions exhibit stronger trading correlations, and correspondingly, the returns of firms headquartered in less sophisticated areas are more strongly correlated. Further, we show that local economic conditions have a greater ability to predict local stock returns in U.S. states with less sophisticated retail investors. These asset pricing results are driven by the sophistication of actual local investors, and not by the characteristics of the broader local population.

Keywords: Local return predictability, return comovement, trading correlation, investor sophistication, risk sharing, local bias, state portfolios

JEL Classification: G11, G12

Suggested Citation

Korniotis, George M. and Kumar, Alok and Page, Jeremy K., Investor Sophistication and Asset Prices (July 18, 2017). Available at SSRN: https://ssrn.com/abstract=2187569 or http://dx.doi.org/10.2139/ssrn.2187569

George M. Korniotis

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-5728 (Phone)

Miami Business School ( email )

University of Miami - Behavioral Decision Making Cluster ( email )

5250 University Drive
Coral Gables, FL 33124
United States

Alok Kumar (Contact Author)

University of Miami - Miami Herbert Business School ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Jeremy K. Page

Brigham Young University ( email )

Marriott School of Management
685 TNRB
Provo, UT 84602
United States
801-422-7173 (Phone)

HOME PAGE: http://marriottschool.byu.edu/directory/details?id=19364

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