Publications
Publications
- Journal of Investment Management
Investing in What You Know: The Case of Individual Investors and Local Stocks
By: Mark Seasholes and Ning Zhu
Abstract
This paper tests the performance of individuals' equity investments. We study over 40,000
accounts and 950,000 trades from a large discount broker. Individuals invest heavily in
local stocks and put 14% more into these stocks than a market-neutral portfolio would
suggest. Using holdings-based calendar-time portfolios, we find the local holdings do
not generate positive alphas. Using the transactions data, we find local stocks bought
actually underperform local stocks sold (though the underperformance is more severe
when considering remote stocks). We find no support for the folk wisdom that one should
"invest in what you know."
Keywords
Citation
Seasholes, Mark, and Ning Zhu. "Investing in What You Know: The Case of Individual Investors and Local Stocks." Journal of Investment Management 11, no. 1 (First Quarter 2013): 20–30.