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Do the diversification choices of individual investors influence stock returns?
- Source :
- Journal of Financial Markets; Nov2007, Vol. 10 Issue 4, p362-390, 29p
- Publication Year :
- 2007
-
Abstract
- Abstract: This paper shows that the diversification choices of individual investors influence stock returns. A zero-cost portfolio that takes a long (short) position in stocks with the least (most) diversified individual investor clientele generates an annual, risk-adjusted return of 5–9%. This spread reflects the combined effects of sentiment-induced mispricing, narrow risk framing, and asymmetric information, where the sentiment effect is the strongest. Furthermore, the influence on returns is stronger among smaller, low institutionally owned, and hard-to-arbitrage stocks. These results are robust to concerns about relatively short sample size, improper factor model specification, slow information diffusion, and high transactions costs. [Copyright &y& Elsevier]
- Subjects :
- RATE of return
INVESTORS
COMMODITY exchanges
FOREIGN exchange
Subjects
Details
- Language :
- English
- ISSN :
- 13864181
- Volume :
- 10
- Issue :
- 4
- Database :
- Supplemental Index
- Journal :
- Journal of Financial Markets
- Publication Type :
- Academic Journal
- Accession number :
- 27002073
- Full Text :
- https://doi.org/10.1016/j.finmar.2007.06.003