Portfolio Concentration and the Performance of Individual Investors

60 Pages Posted: 7 Mar 2005

See all articles by Zoran Ivkovich

Zoran Ivkovich

Michigan State University, Department of Finance

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER)

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Abstract

This paper tests whether information advantages help explain why some individual investors concentrate their stock portfolios in a few stocks. Stock investments made by households that choose to concentrate their brokerage accounts in a few stocks outperform those made by households with more diversified accounts (especially among those with large portfolios). Excess returns of concentrated relative to diversified portfolios are stronger for stocks not included in the S&P 500 index and local stocks, potentially reflecting concentrated investors' successful exploitation of information asymmetries. Controlling for households' average investment abilities, their trades and holdings perform better when their portfolios include fewer stocks.

Keywords: Portfolio choice, concentration, diversification

JEL Classification: G11, G14

Suggested Citation

Ivkovich, Zoran and Sialm, Clemens and Weisbenner, Scott J., Portfolio Concentration and the Performance of Individual Investors. AFA 2006 Boston Meetings; Journal of Financial and Quantitative Analysis, Forthcoming. Available at SSRN: https://ssrn.com/abstract=568156 or http://dx.doi.org/10.2139/ssrn.568156

Zoran Ivkovich

Michigan State University, Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Clemens Sialm (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Scott J. Weisbenner

University of Illinois at Urbana-Champaign - Department of Finance ( email )

340 Wohlers Hall, MC-706
1206 S. Sixth Street
Champaign, IL 61820
United States
217-333-0872 (Phone)
217-244-9867 (Fax)

HOME PAGE: http://business.illinois.edu/weisbenn/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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