The Portfolio Composition Effect

75 Pages Posted: 28 Jul 2020 Last revised: 14 Jul 2021

See all articles by Jan Müller-Dethard

Jan Müller-Dethard

University of Mannheim

Martin Weber

University of Mannheim - Department of Banking and Finance

Multiple version iconThere are 3 versions of this paper

Date Written: July 2020


This study asks whether a simple, counting-based measure of performance, which is the fraction of winner stocks in a portfolio, affects people's willingness to invest in the portfolio. We find experimental evidence that indicates that individuals allocate larger investments to portfolios with larger fractions of winner stocks, albeit alternative portfolios have realized identical overall portfolio returns and show identical expected risk-return characteristics. Building on our experimental findings, we show empirically that the proposed composition measure also matters for the demand of leading equity market index funds. A framework which combines category-based thinking and mental accounting can explain the effect.

JEL Classification: D84, G11, G12, G40

Suggested Citation

Müller-Dethard, Jan and Weber, Martin, The Portfolio Composition Effect (July 2020). CEPR Discussion Paper No. DP15012, Available at SSRN:

Jan Müller-Dethard (Contact Author)

University of Mannheim ( email )

Department of Finance, L9, 1-2
Mannheim, 68131

Martin Weber

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

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

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