Do Portfolio Distortions Reflect Superior Information or Psychological Biases?
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Using a demographics-based proxy for smartness, we show that the portfolio distortions of “smart” investors reflect an informational advantage, while the distortions of “dumb” investors reflect psychological biases. Specifically, smart investors outperform dumb investors by about 3% annually on a risk-adjusted basis. Furthermore, among investors with high portfolio distortions, smart investors outperform passive benchmarks by 2%, and the smart-dumb performance differential is 5%. At the stock level, a portfolio of stocks with smart investor clientele outperforms the dumb clientele portfolio by 3.50% annually. These findings suggest that behavioral and information-based explanations for portfolio distortions apply to distinct subsets of investors.
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- Authors
- Korniotis, G. M., & Kumar, A.
- Affiliations
- University of Miami (US)
- Venue
- Journal of Financial and Quantitative Analysis
- Publisher
- Cambridge University Press (CUP)
- Published
- 2013-01-07
- Volume
- 48
- Issue
- 1
- Pages
- 1-45
- ISSN
- 0022-1090 (ISSN-L)
- 1756-6916
- OpenAlex
- W3125749148
- Cited by
- 166
- References
- 79
- Citations by year
- 2026: 3 · 2025: 7 · 2024: 29 · 2023: 9 · 2022: 4 · 2021: 7 · 2020: 12 · 2019: 6 · 2018: 10 · 2017: 13 · 2016: 12 · 2015: 15 · 2014: 14 · 2013: 15 · 2012: 5
- FWCI
- 21.93
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Locations
- Journal of Financial and Quantitative Analysis (publishedVersion)
- SSRN Electronic Journal (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Figshare (submittedVersion, cc-by)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Keywords
- investor demographics, psychological biases, behavioral finance, information advantage, investor performance, risk-adjusted returns, investor heterogeneity
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