Rank Matters - The Impact of Social Competition on Portfoilio Choice

31 Pages Posted: 23 Jan 2013

See all articles by Oege Dijk

Oege Dijk

Center for Finance

Martin Holmen

University of Gothenburg - Department of Economics; University of Gothenburg - Centre for Finance

Michael Kirchler

University of Innsbruck

Date Written: January 23, 2013

Abstract

Incentive schemes resulting in tournament competition have been criticized for inducing excessive risk-taking among financial market participants. In this paper we investigate the influence of relative performance-based incentive schemes on risk-taking and portfolio choice. In particular, we focus on whether both variables are influenced by an instrumental or an intrinsic concern for high rank. We find that both underperformers and over-performers adapt their portfolios to their current relative performance, preferring either positively or negatively skewed assets, respectively. Remarkably, these results hold both when relative performance is instrumental for higher payoffs (Treatment TOURNAMENT) and when it is only intrinsically and not payout-relevant (Treatment SOCIAL). We find no effects when no relative performance information is given (Treatment INDIVIDUAL). We further report no difference in the preference for idiosyncratic or correlated assets between over- and underperformers in all treatments.

Keywords: Portfolio choice, tournaments, social competition, experiments

JEL Classification: C91, G11

Suggested Citation

Dijk, Oege and Holmen, Martin and Kirchler, Michael, Rank Matters - The Impact of Social Competition on Portfoilio Choice (January 23, 2013). Available at SSRN: https://ssrn.com/abstract=2205616 or http://dx.doi.org/10.2139/ssrn.2205616

Oege Dijk

Center for Finance ( email )

Box 640
Gothenburg, 403 50
Sweden

Martin Holmen (Contact Author)

University of Gothenburg - Department of Economics ( email )

School of Business, Economics and Law
Box 640
Gothenburg, 40530
Sweden
+46 31 786 6442 (Phone)
+46 31 7865114 (Fax)

University of Gothenburg - Centre for Finance ( email )

Box 640
Gothenburg, 403 50
Sweden

Michael Kirchler

University of Innsbruck ( email )

Universit├Ątsstra├če 15
Innsbruck, Innsbruck 6020
Austria

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