Information Acquisition and Portfolio Performance

Luigi Guiso and Tullio Jappelli ()

No ECO2007/45, Economics Working Papers from European University Institute

Abstract: Rational investors perceive correctly the value of financial information. Investment in information is therefore rewarded with a higher Sharpe ratio. Overcon.dent investors overstate the quality of their own information, and thus attain a lower Sharpe ratio. We contrast the implications of the two models using a unique survey of customers of an Italian leading bank with portfolio data and measures of financial information. We find that the portfolio Sharpe ratio is negatively associated with investment in information. The negative correlation is stronger for men than women and for those who claim they know stocks well, arguably because these investors are more likely to be overcon.dent. We also show that investment in information is associated with more frequent trading, less delegation of portfolio decisions and less diversified portfolios. In each case, the effect of information is stronger for investors who, a priori, are suspected to be more overconfident.

Keywords: Portfolio Choice; Rationality; Overconfidence; Behavioral Finance (search for similar items in EconPapers)
JEL-codes: D8 E2 G1 (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://cadmus.iue.it/dspace/bitstream/1814/7499/1/ECO-2007-45.pdf main text
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: Information Acquisition and Portfolio Performance (2006)
Working Paper: Information Acquisition and Portfolio Performance (2006)
Working Paper: Information Acquisition and Portfolio Performance (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2007/45

Access Statistics for this paper

More papers in Economics Working Papers from European University Institute Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Cécile Brière ().