Down or Out

Assessing the Welfare Costs of Household Investment Mistakes

Bibliographic Data

ID10179237
AuthorsLaurent E Calvet (0000-0001-9086-925X, HEC Paris), John Y Campbell (Harvard University), Paolo Sodini (Stockholm School of Economics)
Year2007
Volume115
Issue5
Pages707-747
Publication date2007-10-01
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueJournal of Political Economy (JOURNAL)
Journal identifiersISSN: 0022-3808 • E-ISSN: 1537-534X
PublisherUniversity of Chicago Press (PUBLISHER • US)
DOI10.1086/524204
OpenAlexW3123974814
LanguageEN
Citations received34
References cited26

This paper investigates the efficiency of household investment decisions using comprehensive disaggregated Swedish data. We consider two main sources of inefficiency: underdiversification ("down") and nonparticipation in risky asset markets ("out"). While a few households are very poorly diversified, most Swedish households outperform the Sharpe ratio of their domestic stock index through international diversification. Financially sophisticated households invest more efficiently but also more aggressively, and overall they incur higher return losses from underdiversification. The return cost of nonparticipation is smaller by almost one-half when we take account of the fact that nonparticipants would likely be inefficient investors. (c) 2007 by The University of Chicago. All rights reserved

Asset (computer security · Business · Diversification (marketing strategy · Economics · Financial economics · Inefficiency · Investment (military · Labour economics · Microeconomics · Portfolio · Rate of return · Sharpe ratio · Stock (firearms · Welfare · Finance · Financial Literacy, Pension, Retirement Analysis · Housing Market and Economics · Monetary Policy and Economic Impact

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