Professionalism and Portfolio Biases
The effect of professionalism on investment decisions has been found to be ambiguous. If professional investors exhibit typical portfolio biases of laymen, however, financial markets can hardly be efficient. An examination of this important question requires comparable data on various investor groups, portfolio biases and control variables. Accordingly, we have conducted a survey of about 500 investors, covering professionals and laymen. We find that investors’ professionalism consistently reduces home bias, portfolio churning and reluctance to loss realization. The three measures of professionalism used – occupation, experience and knowledge – are statistically significant and economically important for explaining portfolio biases, even when introduced in combination.
Key Words
- home bias
- individual investors
- Institutional investors
- investment experience
- market knowledge
- portfolio churning