Portfolio Concentration and the Performance of Individual Investors

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 divers...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2008-09, Vol.43 (3), p.613-655
Main Authors: Ivković, Zoran, Sialm, Clemens, Weisbenner, Scott
Format: Article
Language:English
Subjects:
Accounts
Brokerage
Common stock
Exploitation
Financial investments
Financial portfolios
Financial research
Herfindahl Hirschman index
Households
Investment analysis
Investors
Portfolio diversification
Portfolio selection
Portfolios
Stock exchange
Stock prices
Stock purchases
Stock sales
Trade
U.S.A
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Summary: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 concentracted investors' successful exploitation of information asymmetries. Controlling for households' average investment abilities, their trades and holdings perform better when their portfolios include fewer stocks.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109000004233