Wisdom of the Institutional Crowd
11 Pages Posted: 10 Mar 2017
Date Written: March 8, 2017
The average portfolio structure of institutional investors is shown to have properties which account for transaction costs in an optimal way. This implies that financial institutions unknowingly display collective rationality, or Wisdom of the Crowd. Individual deviations from the rational benchmark are ample, which illustrates that system-wide rationality does not need nearly rational individuals. Finally we discuss the importance of accounting for constraints when assessing the presence of Wisdom of the Crowd.
Keywords: Keywords Wisdom of the Crowd, Institutional Investors, Optimal Portfolios
JEL Classification: G02, G11
Suggested Citation: Suggested Citation