Failure to Delegate

50 Pages Posted: 15 Mar 2015

See all articles by Daniel Dorn

Daniel Dorn

Drexel University - Department of Finance

Martin Weber

University of Mannheim - Department of Banking and Finance

Date Written: March 13, 2015


This paper documents a sharp reversal of individual investors' tendency to delegate their equity investments between 2007 and 2011, primarily based on a representative sample of 40,000 self-directed clients at one of Germany's largest retail banks. At the beginning of 2007, the typical sample investor holds 44% of his equity investments in stock funds; at the end of 2011, this fraction has dropped by about half. Much of the drop occurs at the height of the 2008 and 2011 financial crises, implying that investors take on idiosyncratic risk precisely when equity market volatility peaks. The failure to delegate is not special to the sample; it can also be detected in the broader German investor population and among U.S. households. The failure to delegate is costly: sample investors who tilt their equity portfolio towards individual stocks experience returns that are 25% more volatile and 2% per year lower, on average, than had they simply held on to their more delegated portfolios. The explanation for the decline in delegation that appears to be most consistent with the data is that investors perceive opportunities in individual stocks during the recent financial crises, but do not trust active fund managers to exploit these opportunities on their behalf.

Keywords: Individual investors, portfolio choice, delegated investing, equity portfolio diversification, financial crisis

JEL Classification: G01, G11

Suggested Citation

Dorn, Daniel and Weber, Martin, Failure to Delegate (March 13, 2015). Available at SSRN: or

Daniel Dorn (Contact Author)

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics