 Fight Or Flight? Portfolio Rebalancing by Individual InvestorsLaurent Calvet, Paolo Sodini and John Campbell Post-Print from HAL Abstract: This paper investigates the dynamics of individual portfolios in a unique data set containing the disaggregated wealth of all households in Sweden. Between 1999 and 2002, we observe little aggregate rebalancing in the financial portfolio of participants. These patterns conceal strong household-level evidence of active rebalancing, which on average offsets about one-half of idiosyncratic passive variations in the risky asset share. Wealthy, educated investors with better diversified portfolios tend to rebalance more actively. We find some evidence that households rebalance toward a greater risky share as they become richer. We also study the decisions to trade individual assets. Households are more likely to fully sell directly held stocks if those stocks have performed well, and more likely to exit direct stockholding if their stock portfolios have performed well; but these relationships are much weaker for mutual funds, a pattern that is consistent with previous research on the disposition effect among direct stockholders and performance sensitivity among mutual fund investors. When households continue to hold individual assets, however, they rebalance both stocks and mutual funds to offset about one-sixth of the passive variations in individual asset shares. Households rebalance primarily by adjusting purchases of risky assets if their risky portfolios have performed poorly, and by adjusting both fund purchases and full sales of stocks if their risky portfolios have performed well. Finally, the tendency for households to fully sell winning stocks is weaker for wealthy investors with diversified portfolios of individual stocks. Keywords: Portfolio Rebalancing; Individual Investors (search for similar items in EconPapers) Published in Quarterly Journal of Economics, 2009, Vol.124, n°1, pp.301-348. ⟨10.1162/qjec.2009.124.1.301⟩ There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00459683 DOI: 10.1162/qjec.2009.124.1.301 Access Statistics for this paper More papers in Post-Print from HAL |
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