Do Financial Experts Make Better Investment Decisions?

doi:10.2139/ssrn.2021501

Paper

Do Financial Experts Make Better Investment Decisions?

Published 2012 · Andriy Bodnaruk, Andrei Simonov

ERN: Behavioral Finance (Econometrics) (Topic)

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Abstract

We provide direct evidence on the effect of financial expertise on investment outcomes. We analyze private portfolios of mutual fund managers. We find no evidence that financial experts are making better investment decisions than their less financially astute peers: they do not outperform, do not diversify their risks better, and do not exhibit lower behavioral biases. Managers do much better in stocks they share with their mutual funds; however, only about 22% of them have any mutual fund-related positions. Some managers, particularly more experienced ones, seem to be aware of the limitations to their investment skills as they increase their holdings of mutual fund related stocks following bad performance of their portfolio. Our results demonstrate that day-to-day knowledge of finance does not improve investment decisions.

Study Snapshot

Financial experts do not make better investment decisions than their less financially astute peers, as they do not outperform, diversify risks better, or exhibit lower behavioral biases.

PopulationOlder adults (50-71 years)

Sample size24

MethodsObservational

OutcomesBody Mass Index projections

ResultsSocial networks mitigate obesity in older groups.

Paper

Do Financial Experts Make Better Investment Decisions?

References

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