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Portfolio Concentration and the Performance of Individual Investors

Published online by Cambridge University Press:  06 April 2009

Zoran Ivković ,
Clemens Sialm  and
Scott Weisbenner
Zoran Ivković
Affiliation:
ivkovich@bus.msu.edu, Department of Finance, Broad College of Business, Michigan State University, 315 Eppley Center, East Lansing, MI 48824
Clemens Sialm
Affiliation:
sialm@mccombs.utexas.edu, Department of Finance, McCombs School of Business, University of Texas at Austin, 1 University Station B6600, Austin, TX 78712
Scott Weisbenner
Affiliation:
weisbenn@uiuc.edu, Department of Finance, University of Illinois at Urbana-Champaign, 340 Wohlers Hall, 1206 South Sixth St., Champaign, IL 61820.
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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 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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 43 , Issue 3 , September 2008 , pp. 613 - 655
Copyright
Copyright © School of Business Administration, University of Washington 2008

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