The Portfolio Composition Effect

Martin Weber and Jan Mueller-Dethard

No 15012, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This study asks whether a simple, counting-based measure of performance, which is the fraction of winner stocks in a portfolio, affects people’s willingness to invest in the portfolio. We find experimental evidence that indicates that individuals allocate larger investments to portfolios with larger fractions of winner stocks, albeit alternative portfolios have realized identical overall portfolio returns and show identical expected risk-return characteristics. Building on our experimental findings, we show empirically that the proposed composition measure also matters for the demand of leading equity market index funds. A framework which combines category-based thinking and mental accounting can explain the effect.

Keywords: Portfolio composition; Investment behavior; Risk preferences; Mental accounting (search for similar items in EconPapers)
JEL-codes: D84 G11 G12 G40 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-cwa and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP15012 (application/pdf)

Related works:
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:cpr:ceprdp:15012

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15012

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().