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Fight or flight? : portfolio rebalancing by individual investors

Author: Laurent E Calvet; John Y Campbell; Paolo Sodini; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, 2008.
Series: Working paper series (National Bureau of Economic Research), no. 14177.
Edition/Format:   eBook : Document : EnglishView all editions and formats
Database:WorldCat
Summary:
This paper investigates the dynamics of individual portfolios in a unique dataset 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  Read more...
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Additional Physical Format: Print version:
Calvet, Laurent E.
Fight or flight?.
Cambridge, Mass. : National Bureau of Economic Research, 2008
(DLC) 2008610995
Material Type: Document, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Laurent E Calvet; John Y Campbell; Paolo Sodini; National Bureau of Economic Research.
OCLC Number: 234286471
Notes: "July 2008."
Description: 1 online resource (32 pages) : illustrations.
Series Title: Working paper series (National Bureau of Economic Research), no. 14177.
Responsibility: Laurent E. Calvet, John Y. Campbell, Paolo Sodini.

Abstract:

This paper investigates the dynamics of individual portfolios in a unique dataset 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 towards a higher 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 which 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.

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