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Investing in What You Know: The Case of Individual Investors and Local Stocks |
This paper tests the performance of individuals' equity investments. We study over 40,000 accounts and 950,000 trades from a large discount broker. Individuals invest heavily in local stocks and put 14% more into these stocks than a market-neutral portfolio would suggest. Using holdings-based calendar-time portfolios, we find the local holdings do not generate positive alphas. Using the transactions data, we find local stocks bought actually underperform local stocks sold (though the underperformance is more severe when considering remote stocks.) We find no support for the folk wisdom that one should "invest in what you know."
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Journal of Investment Management, First Quarter 2013-Mark S. Seasholes and Ning Zhu
13.02.2100
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Themes
Asia
Bonds
Bubbles and Crashes
Business Cycles Central Banks
China
Commodities Contrarian
Corporates
Creative Destruction Credit Crunch
Currencies
Current Account
Deflation Depression
Equity Europe Financial Crisis Fiscal Policy
Germany
Gloom and Doom Gold
Government Debt
Historical Patterns
Household Debt Inflation
Interest Rates
Japan
Market Timing
Misperceptions
Monetary Policy Oil Panics Permabears PIIGS Predictions
Productivity Real Estate
Seasonality
Sovereign Bonds Systemic Risk
Switzerland
Tail Risk
Technology
Tipping Point Trade Balance
U.S.A. Uncertainty
Valuations
Yield
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