Skewness expectations and portfolio choice

Tilman H. Drerup; Matthias Wibral; Christian Zimpelmann

doi:10.1007/s10683-022-09780-9

Skewness expectations and portfolio choice

Tilman H. Drerup
, Matthias Wibral^*
, Christian Zimpelmann

^*Corresponding author for this work

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We elicit detailed return expectations for a broad index fund and a single stock in a representative sample of the Dutch population. The data show substantial heterogeneity in individuals’ skewness expectations of which only very little is captured by sociodemographics. Across assets, most respondents expect a higher variance and skewness for the individual stock compared to the index fund. Portfolio allocations increase with the skewness of respondents’ return expectations for the respective asset, controlling for other moments of a respondent’s expectations.

Original language	English
Pages (from-to)	107-144
Number of pages	38
Journal	Experimental Economics
Volume	26
Issue number	1
Early online date	2022
DOIs	https://doi.org/10.1007/s10683-022-09780-9
Publication status	Published - Mar 2023

JEL classifications

d84 - "Expectations; Speculations"
d14 - Personal Finance
g11 - "Portfolio Choice; Investment Decisions"
g02 - Behavioral Finance: Underlying Principles (Outdated)

Keywords

skewness
stock market expectations
portfolio choice
behavioral finance
Skewness
Portfolio choice
Stock market expectations
Behavioral finance

Access to Document

10.1007/s10683-022-09780-9Licence: CC BY

Replication Package for "Skewness Expectations and Portfolio Choice"
Drerup, T. H. (Creator), Wibral, M. (Creator) & Zimpelmann, C. (Creator), Zenodo, 2 Sept 2022
DOI: 10.5281/zenodo.7043361, https://doi.org/10.5281/zenodo.7043362 and 3 more links, https://doi.org/10.5281/zenodo.7093464, https://doi.org/10.5281/zenodo.7114349, https://doi.org/10.5281/zenodo.7114350 (show fewer)
Dataset/Software: Software

Cite this

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title = "Skewness expectations and portfolio choice",

abstract = "Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We elicit detailed return expectations for a broad index fund and a single stock in a representative sample of the Dutch population. The data show substantial heterogeneity in individuals{\textquoteright} skewness expectations of which only very little is captured by sociodemographics. Across assets, most respondents expect a higher variance and skewness for the individual stock compared to the index fund. Portfolio allocations increase with the skewness of respondents{\textquoteright} return expectations for the respective asset, controlling for other moments of a respondent{\textquoteright}s expectations.",

keywords = "skewness, stock market expectations, portfolio choice, behavioral finance, Skewness, Portfolio choice, Stock market expectations, Behavioral finance",

author = "Drerup, \{Tilman H.\} and Matthias Wibral and Christian Zimpelmann",

note = "data source: The replication material for the study (data and code) is available at https://zenodo.org/record/7114350 Funding Information: We thank Sebastian Ebert, Benjamin Enke, Hans-Martin von Gaudecker, Holger Gerhardt, Paul Karehnke, Sebastian Kube, Farzad Saidi, Sebastian Schaube, Tobias Schmidt, Stefan Trautmann, Jana Willrodt, and Florian Zimmermann for helpful discussions. Valuable comments were received from audiences at the Behavioral Finance Working Group meeting at Queen Mary University, the CEAR/MRIC Behavioral Insurance Workshop Munich, the CERP workshop at Collegio Carlo Alberto, the INFER conference at G{\"o}ttingen, Maastricht University, and the University of Bonn. Matthias Wibral gratefully acknowledges financial support from the European Union{\textquoteright}s Horizon 2020 research and innovation programme under the Marie Sk{\l}odowska-Curie grant agreement 749741. Support from the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) through CRC-TR 224 (Project C01) is gratefully acknowledged by Christian Zimpelmann. The replication material for the study is available at https://doi.org/10.5281/zenodo.7114350 . Publisher Copyright: {\textcopyright} 2022, The Author(s).",

year = "2023",

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doi = "10.1007/s10683-022-09780-9",

language = "English",

volume = "26",

pages = "107--144",

journal = "Experimental Economics",

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N1 - data source: The replication material for the study (data and code) is available at https://zenodo.org/record/7114350 Funding Information: We thank Sebastian Ebert, Benjamin Enke, Hans-Martin von Gaudecker, Holger Gerhardt, Paul Karehnke, Sebastian Kube, Farzad Saidi, Sebastian Schaube, Tobias Schmidt, Stefan Trautmann, Jana Willrodt, and Florian Zimmermann for helpful discussions. Valuable comments were received from audiences at the Behavioral Finance Working Group meeting at Queen Mary University, the CEAR/MRIC Behavioral Insurance Workshop Munich, the CERP workshop at Collegio Carlo Alberto, the INFER conference at Göttingen, Maastricht University, and the University of Bonn. Matthias Wibral gratefully acknowledges financial support from the European Union’s Horizon 2020 research and innovation programme under the Marie Skłodowska-Curie grant agreement 749741. Support from the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) through CRC-TR 224 (Project C01) is gratefully acknowledged by Christian Zimpelmann. The replication material for the study is available at https://doi.org/10.5281/zenodo.7114350 . Publisher Copyright: © 2022, The Author(s).

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N2 - Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We elicit detailed return expectations for a broad index fund and a single stock in a representative sample of the Dutch population. The data show substantial heterogeneity in individuals’ skewness expectations of which only very little is captured by sociodemographics. Across assets, most respondents expect a higher variance and skewness for the individual stock compared to the index fund. Portfolio allocations increase with the skewness of respondents’ return expectations for the respective asset, controlling for other moments of a respondent’s expectations.

AB - Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We elicit detailed return expectations for a broad index fund and a single stock in a representative sample of the Dutch population. The data show substantial heterogeneity in individuals’ skewness expectations of which only very little is captured by sociodemographics. Across assets, most respondents expect a higher variance and skewness for the individual stock compared to the index fund. Portfolio allocations increase with the skewness of respondents’ return expectations for the respective asset, controlling for other moments of a respondent’s expectations.

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KW - portfolio choice

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JO - Experimental Economics

JF - Experimental Economics

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ER -

Skewness expectations and portfolio choice

Abstract

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Replication Package for "Skewness Expectations and Portfolio Choice"

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