Investor Profile Research Articles

Mean‐extended Gini portfolios personalized to the investor's profile

PurposeShalit and Yitzhaki presented the mean‐extended Gini (MEG) as a workable alternative to the Markowitz mean‐variance approach in 1984. Since then, the challenge has been to extend the MEG approach. The purpose of this paper is to propose a generalization of the MEG approach for making customized optimal asset allocation to control both down‐performance and/or up‐performance.Design/methodology/approachThe MEG approach is used to make strategical allocation tailored to the investor risk aversion and gain propensity measured by characteristic parameters of the extended Gini measures.FindingsThe authors set up two optimization problems: the former focused on controlling the risk, the latter on emphasizing the potential gains. Sufficient conditions such that the efficient MEG‐risk frontier coincides with the inefficient MEG‐gain frontier are stated. In the realistic scenarios that portfolios have asymmetrical distributions and/or the investor profile is very conservative or very aggressive, the desirable occurrence that a portfolio is optimal under both optimizations may occur.Originality/valueThe main contribution of this research is to have pointed out that optimal allocation must be tailored to both the investor's risk and gain profile; and, that the optimality may be not preserved if the investor's risk‐gain profile changes. So, the statement “optimal allocation” should be reworded as “optimal allocation personalized to the investor's risk‐aversion and gain‐propensity”.

Finanças comportamentais: um estudo com base na teoria do prospecto e no perfil do investidor de estudantes de cursos stricto sensu da grande Florianópolis

Finanças Comportamentais representa uma nova área de estudo que busca analisar os aspectos psicológicos dos indivíduos no processo de tomada de decisões financeiras. Estudos nessa área buscam verificar premissas assumidas pelas teorias mais tradicionais, em particular a da racionalidade dos agentes econômicos, tendo como objetivo aperfeiçoar o modelo econômico-financeiro por meio da incorporação de evidências sobre a irracionalidade do investidor. Neste contexto, o objetivo deste artigo é compreender o comportamento dos estudantes de pós-graduação stricto sensu quanto à sua atuação em investimentos com base nas finanças comportamentais. A fim de obter informações sobre o perfil comportamental de investidores e futuros investidores, foi realizada uma pesquisa quantitativa para coleta de dados com uso de um questionário composto de 15 questões aplicadas a 94 estudantes de stricto sensu da Grande Florianópolis. Foi possível identificar que o perfil conservador predominou entre os estudantes pesquisados. Também se verificou que os estudantes apresentaram aversão ao risco no campo dos ganhos e propensão ao risco no campo das perdas. Assim, é possível afirmar que ocorreu o efeito reflexo na presente pesquisa.

A fuzzy rule based expert system for stock evaluation and portfolio construction: An application to Istanbul Stock Exchange

The aim of this study is to construct appropriate portfolios by taking investor’s preferences and risk profile into account in a realistic, flexible and practical manner. In this concern, a fuzzy rule based expert system is developed to support portfolio managers in their middle term investment decisions. The proposed expert system is validated by using the data of 61 stocks that publicly traded in Istanbul Stock Exchange National-100 Index from the years 2002 through 2010. The performance of the proposed system is analyzed in comparison with the benchmark index, Istanbul Stock Exchange National-30 Index, in terms of different risk profiles and investment period lengths. The results reveal that the performance of the proposed expert system is superior relative to the benchmark index in most cases. Additionally, in parallel to our expectations, the performance of the expert system is relatively higher in case of risk-averse investor profile and middle term investment period than the performance observed in the other cases.

KNOW YOUR CLIENT! INVESTOR PROFILE AND TAILOR‐MADE ASSET ALLOCATION RECOMMENDATIONS

AbstractWe study how the investor profile influences the asset allocation recommendations of professional advisors. We find the investor's perceived risk attitude influences more the mix of risky assets, whereas the socioeconomic variables influence more the cash percentage. The recommendations are consistent with a diversification behavior driven by actual asset correlations. These findings support the utility of investor advisory that may help enhance the risk and return trade‐off. The main drawback of the recommendations may consist in the degree of customization that is limited by the small number of investor characteristics actually influencing the asset allocation.

Inertia and Discounting in the Selection of Socially Responsible Investments: An Experimental Investigation

Socially responsible investment funds (SRIs) have grown dramatically as an investment alternative in most of the developed world. This is an important development from a managerial perspective since the criteria used to qualify for inclusion in these funds could influence the decisions and behaviors of managers with regards to their CSR practices. However, little is known about how investors select SRI funds and how they allocate their investments in these funds. This study uses a structured experimental approach to determine if the decision-making process of investors to invest in SRIs is consistent with the decision-making used for conventional investments. Our theoretical framework draws on two widely studied concepts in the decision-making and investment literature, namely, inertia and discounting. For our 704 respondents we find that inertia plays a significant role in the selection of SRI funds and that they systemically discount the value of SRIs. Furthermore, the level of discounting of SRIs was positively related to the risk level of the investments. Our results suggest that SRIs need to be designed to cater to the risk/return profiles of investors and that these investors need to be better informed about the performance of SRIs versus conventional investments in order to reduce their systematic discounting.

Herding, information uncertainty and investors' cognitive profile

PurposeThe purpose of this paper is to analyze the interaction between the availability of financial information and individuals' cognitive profiles to explain investors' herding behavior.Design/methodology/approachThe authors designed and conducted an experiment to observe the behavior of subjects in three settings, each with a different level of information.FindingsResults confirm that a dependence relation exists between information, investors' behavioral biases and the herding phenomenon. Moreover, the experiment shows that information concerning the number of previous transactions in the market is particularly relevant to explain herding propensity among investors. The findings indicate that the cognitive profile of investors is more relevant as the availability of information increases and the number of previous transactions in the market is low.Research limitations/implicationsFuture research should examine further the best way to measure the individual's cognitive profile and its interaction with information limitation in financial markets. The presence of high levels of uncertainty favors herding behavior regardless of inter‐individual differences, and only when the availability of information is high and the number of transactions is low does the subjects' cognitive profile explain the investors' herding behavior. Finally, it is observed that not all public information receives the same attention by investors. The attractiveness of public information requires further attention.Social implicationsThe herding phenomenon is difficult to anticipate because there are factors of a very diverse nature that intervene.Originality/valueThe research described in this paper measures investors' cognitive profile to identify the interaction between availability of information, cognitive profile and herding.

Two Waves of Globalization in the Istanbul Stock Exchange since 1985 and the Evolution of the Domestic Retail Investor

This paper reviews the quarter century of the Istanbul Stock Exchange (ISE) since its opening in 1985. The review focuses on the ISE's articulation to the global financial system in two different macro-economic modalities in the 1990s and the new millennium and its repercussions for domestic retail investors (DRIs). It is argued that macroeconomic business cycles and inadequate institutionalization of the ISE in the 1990s and early 2000s have generated a domestic investor profile which is short-termist, opportunistic and relatively ill-informed about the markets in general and fundamentals of equity investment in particular. The post-2000-01 crisis period has structurally transformed the Turkish economy and boosted the ISE's performance with a new wave of global institutional investor interest. Despite these positive changes, the domestic retail investor profile of the 1990s has largely remained the same in the present decade but with positive aggregate market returns for domestic investors and better and more democratic access to market information and knowledge.

Forecasting Residential Rents: The Case of Auckland, New Zealand

A large number of studies have examined the price dynamics of housing markets and the comparative forecasting ability of alternative methodological frameworks. However, there has been relatively little work that focuses on forecasting residential rents. This paper uses two alternative methodological frameworks to forecast residential rents in Auckland, New Zealand from the early 1990’s onwards; namely a fundamental variable based Ordinary Least Squares (OLS) model and a univariate Auto Regressive Integrated Moving Average (ARIMA) approach. The results indicate that the simple ARIMA is superior in forecasting residential rents. This suggests that the fundamental variable specification may be useful in estimating turning points in rental movements, but that the simple autoregressive framework is more accurate in predicting rent levels. This is thought to be due to the heterogeneous profile of residential investors and key behavioural issues, such as myopic expectations surrounding returns that surround small-scale non-institutional investors dominating the residential rental market.

Bid and Ask Asset Pricing Through the Extended Gini Premium Principle: Sufficient and Necessary Conditions for Trading

Since Shalit and Yitzhaki (1984) the premium principle based on the Extended Gini of an uncertain position has been defined as its expected value minus the extended Gini index. We propose this principle for making capital asset pricing tailored to the investor profile. Bid and ask prices of the counter-parties involved in transactions are defined. Risk and gain-premia are given through personalized Extended Gini indices able to capture the buyer risk aversion and the seller gain propension. Sufficient and necessary conditions for trading are set out. Closed-end formulae for the most common asset distributions used in Finance are given and general guide-lines involving the asset skewness drawn. Eventually, we discuss the optimal bid and ask portfolio allocation. We give evidence that if the portfolio distributions are symmetrical and/or the traders have a moderate profile the optimal bidportfolio corresponds always to the worst ask-portfolio. Vice versa, if portfolio distributions are asymmetrical and the traders have an extreme profile, i.e. strongly risk-averse and highly gain-prone, then optimal bid and ask portfolios are not related.

Who Wins and Who Loses Among Individual Investors?

We study the trade performance of three investor clienteles: investors that use discount retail brokers, full service retail brokers and institutional brokers. Our data have some advantages over those used in other studies in that it covers trade and order data across an entire developed market dominated by institutional investors over a long sample period. We find that individual investors incur significant losses to institutional investors from intraday trading, whereas their net trades earn a positive return over the first month. While individuals trading through both full service and discount brokers lose from intraday trading, only full service broker trades profit over longer holding periods. Full service broker clients' limit order trades earn positive returns over 10 to 25 days, and their market order trades earn positive profit over horizons from 1 to 254 days. They fit the profile of individual investors in Kaniel, Saar and Titman (2008) and the behavior of informed traders in Bloomfield, O'Hara and Saar (2005). The returns discount broker clients earn on limit order trades are negative while those on market orders are not different from zero. Furthermore, discount broker client losses reduce over the course of a trading day, and during low volatility periods. Discount broker clients appear uninformed and suffer from better informed traders picking off their limit orders. Their consistent losses echo the finding in Barber, Lee, Liu and Odean (2009). Our counter party analysis and other robustness tests also support the above interpretation. Overall, our evidence from individual investors trading in stock markets is consistent with a Grossman and Stiglitz (1980) equilibrium in that full service brokers provide more valuable services to their clients than discount brokers and charge a higher fee. This is in contrast to Bergstresser, Chalmers and Tufano (2007) findings in the mutual fund industry. We conclude that individual investors are heterogeneous, and their trading performance reflects the information and brokerage services that they receive.

Emotional Assets and Investment Behavior

This paper empirically models a number of emotional assets in the optimal investment decision. Using the spanning techniques we analyze how these emotional assets add to the risk-return profile of investors. We find highly significant results for art, wine and books as a significant allocation into the emotional asset sector. Our findings firstly substantiate the current allocation of HNWI in the luxury goods sector, and secondly give rise to substantive evidence for investors choosing to maximize risk and return whilst also being prepared to give up some financial return in some sectors for emotive reasons. This gives insightful evidence that investors tend to integrate both personal and societal values into the portfolio management process and moreover helps us to separate the emotional and investment value when investing into assets in general.

One Less Barrier to Foreign Direct Investment in Turkey?

Despite various reasons for the relatively low levels of foreign direct investment (FDI) inflow into Turkey throughout the postwar period, Istanbul has proved relatively successful in attracting inward FDI in services in recent years. Increased production by both foreign and domestic manufacturers in the wider Marmara region has also resulted in a concentration of service sector firms in the greater Istanbul metropolitan area. Examination of the profile of foreign investors and investment categories reveals that Germany and the Netherlands remain major sources of investment, and that investment from these two countries shows the most marked signs of functional linkage between manufacturing and service projects. This growth of functional linkage, exemplified by the increased importance of logistics operations, may represent the removal of one more factor inhibiting inward investment into Turkey on a scale appropriate to its size and growth potential.

Zone of Tolerance as an Effective Management Tool to Assess Service Quality in Singapore's Stockbroking Industry

The zone of tolerance (ZOT) is an innovative concept that has attracted considerable attention in the services marketing arena. Professional services are credence products with hardly any tangible cues to signal quality. A cross-section of 147 recent stock market investors in Singapore provided data on the way they rated their respective stockbroking agents. In developing an initial tool for the stockbroking context, the 44 attributes of service quality were operationalized generating five dimensions which were identified as trust/reliability, information cues, empathic investment advice, relationship building and understanding investor profile. Measure of service adequacy (MSA), measure of service superiority (MSS) and zone of tolerance were calculated. This study revealed that attention should be focused on the dimensions of empathic investment advice and information cues, as stockbrokers' performance on these two dimensions was clearly inadequate. The proposed exploratory instrument used here to measure the service standards in the stockbroking industry could serve as a start for other studies in the professional services context. Some interesting managerial implications of the findings have been discussed.

FINANÇAS COMPORTAMENTAIS: ANÁLISE DO PERFIL COMPORTAMENTAL DO INVESTIDOR E DO PROPENSO INVESTIDOR

Behavioral finance is also known for behavioral economy and it represents a new line in the financial theory that is searches to incorporate the psychological aspects individuals in the evaluation process and pricing of financial assets. This new study line of finances has as objective the revision and the improvement of the current economic financial model for the incorporation of evidences on the irrationality of the investor. In order to get greater information on the behavioral profile of investors and keens investor a exploratory research and with quantitative approach was produced with base on the application of composed questionnaire of 20 directed questions for 164 students and 33 professors of course of management of the Pontifícia Universidade Católica do Paraná. The results were obtained through multivariate statistical techniques as cluster analysis and discriminant analysis. On the analysis five groups with distinct characteristics of importance for the study. A lot of answering assert doesn’t hold knowledge about financial market.

Finanças comportamentais: análise do perfil comportamental do investidor e do propenso investidor

Behavioral finance is also known for behavioral economy and it represents a new line in the financial theory that is searches to incorporate the psychological aspects individuals in the evaluation process and pricing of financial assets. This new study line of finances has as objective the revision and the improvement of the current economic financial model for the incorporation of evidences on the irrationality of the investor. In order to get greater information on the behavioral profile of investors and keens investor a exploratory research and with quantitative approach was produced with base on the application of composed questionnaire of 20 directed questions for 164 students and 33 professors of course of management of the Pontificia Universidade Catolica do Parana. The results were obtained through multivariate statistical techniques as cluster analysis and discriminant analysis. On the analysis five groups with distinct characteristics of importance for the study. A lot of answering assert doesn’t hold knowledge about financial market.

PERFIL DE INVESTIDORES E FORMAÇÃO DE PORTFÓLIOS: CONTRIBUIÇÕES A PARTIR DA ANÁLISE MULTIVARIADA DE DADOS

The present work had as intention to simulate the creation of portfolios, from measurable attributes of the behavior of actions negotiated in the São Paulo Stock Exchange, taking as reference the profile of the investors and aiming at to construct to distinct sets of actions come back the different profiles of investors. The theoretical base of the article if supports on the theory of portfolio that describes the choices of financial applications capable to maximize the waited utility of an investor, from the use of performance indices. The research was constructed from secondary data by means of one ranking composed for 100 stocks negotiated in the São Paulo Stock Exchange in 2005, elaborated for five criteria. The related Ranking was developed by the Economática and was published in Você S/A (2006) with the heading “Guide of Stocks”. For the simulation of the formation of the portfolios techniques of multivariate analysis of data had been used. The results suggest it was possible the differentiation of big and small investors, from questions associates to its profile, as presented in literature of finances, and the identification of distinct criteria for the different formed clusters.

Mutual Fund Investors: Divergent Profiles

Mutual funds are owned by almost half of all U.S. households, manage nearly $12 trillion dollars in assets, and have become a primary vehicle for retirement and investment savings in the United States. Who are mutual fund investors? The answer is critical to regulatory policy for the mutual fund industry. Fund investors, by selecting the funds in which they invest, play a central role in determining asset allocation and in controlling the fees and expenses that funds charge. Thus, the functioning of the mutual fund market turns on the knowledge and financial sophistication of fund investors. This article examines the profiles of mutual fund investors presented alternatively by the mutual fund industry, by the SEC, and by an extensive empirical academic literature. The industry portrays fund investors as diligent, fairly sophisticated, and guided by professional financial advisers. The result, according to the industry, is a competitive mutual fund market in which fund investors demand low costs and solid performance. The SEC's regulatory policy paints a more cautious portrait of fund investors. While acknowledging that many investors have limitations, however, the SEC touts improved disclosure by the industry as a sufficient antidote. The academic literature, produced primarily by finance professors, finds that fund investors are generally uninformed and financially unsophisticated. Most investors are unaware of the basic characteristics of their funds, pay little attention to costs (especially ongoing costs), and chase past performance despite little evidence that high past fund returns predict future returns. Even fund investors who use financial advisers do not make better choices. The SEC's belief that fund investors can fend for themselves, once armed with adequate disclosure, fails to appreciate the extent of investors' limitations. Instead, the findings of the academic literature suggest that policymakers should rethink current regulatory policy. Disclosure may not be enough.

Mutual Fund Investors: Divergent Profiles

Mutual funds are owned by almost half of all U.S. households, manage nearly $12 trillion dollars in assets, and have become a primary vehicle for retirement and investment savings in the United States. Who are mutual fund investors? The answer is critical to regulatory policy for the mutual fund industry. Fund investors, by selecting the funds in which they invest, play a central role in determining asset allocation and in controlling the fees and expenses that funds charge. Thus, the functioning of the mutual fund market turns on the knowledge and financial sophistication of fund investors. This article examines the profiles of mutual fund investors presented alternatively by the mutual fund industry, by the SEC, and by an extensive empirical academic literature. The industry portrays fund investors as diligent, fairly sophisticated, and guided by professional financial advisers. The result, according to the industry, is a competitive mutual fund market in which fund investors demand low costs and solid performance. The SEC’s regulatory policy paints a more cautious portrait of fund investors. While acknowledging that many investors have limitations, however, the SEC touts improved disclosure by the industry as a sufficient antidote. The academic literature, produced primarily by finance professors, finds that fund investors are generally uninformed and financially unsophisticated. Most investors are unaware of the basic characteristics of their funds, pay little attention to costs (especially ongoing costs), and chase past performance despite little evidence that high past fund returns predict future returns. Even fund investors who use financial advisers do not make better choices. The SEC’s belief that fund investors can fend for themselves, once armed with adequate disclosure, fails to appreciate the extent of investors’ limitation. Instead, the findings of the academic literature suggest that policymakers should rethink current regulatory policy. Disclosure may not be enough.

Key changes in profile and characteristics of individual investors on the Johannesburg securities exchange (JSE) over the past two decades

Factors influencing investment behavior in South Africa are a matter of considerable interest among stockbrokers, business strategists, public officials and ordinary people. This paper attempts to characterize and profile the individual investor on the Johannesburg securities exchange (JSE) in order to establish if there have been changes in this grouping over the past two decades. In addition, the paper considers how these changes affect the investment community in current times. The paper draws on data collected in the 1980s as well as data collected by the author more recently. In the latter case, self administered questionnaires were electronically mailed to on-line investors. The responses were analyzed using univariate analysis and frequency tables and the data were compared with those of Firer, who conducted a similar study in the 1980s. Some of the key changes over the past two decades were investors who are now more concentrated in the middle age group, have higher qualifications, hold fewer securities in their portfolio, most invest for the long term, use the all share index to compare performance and feel that they could achieve a much higher return on their investment than previously. These findings provide some opportunities for purveyors of financial services to be selective in their approach to various groups of individual investors. Key words: JSE, demographics, individual investor, risk.

Investor Profile and Asset Allocation Advice

Investor Profile and Asset Allocation Advice