Wisdom of the institutional crowd

Kevin Primicerio, Damien Challet and Stanislao Gualdi
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Kevin Primicerio: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec
Stanislao Gualdi: CFM - Capital Fund Management

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Abstract: The average portfolio structure of institutional investors is shown to have properties which account for transaction costs in an optimal way. This implies that financial institutions unknowingly display collective rationality, or Wisdom of the Crowd. Individual deviations from the rational benchmark are ample, which illustrates that system-wide rationality does not need nearly rational individuals. Finally we discuss the importance of accounting for constraints when assessing the presence of Wisdom of the Crowd.

Date: 2017-03-08
New Economics Papers: this item is included in nep-hpe
Note: View the original document on HAL open archive server: https://hal.science/hal-01484914v1
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Working Paper: Wisdom of the institutional crowd (2017)
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