Information Acquisition and Portfolio PerformanceLuigi 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) Downloads: (external link) Related works: Access Statistics for this paper More papers in Economics Working Papers from European University Institute |
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