The Asset Allocation Decisions Of Individual Investors

Abstract

The asset allocation decisions of individual investors are evaluated using survey data.  By applying a methodology based on attribution returns we are able to assess the forecasting ability of a group of well-informed individual investors.  We find that, if this group of investors follows their survey answers with investment actions, they add value to their overall wealth by actively managing their portfolios.  These investors demonstrate good forecasting ability by effectively shifting their portfolio’s allocations.  Finally, using two different time partitions, based on the general state of the stock market, we find that this group of investors managed their portfolios better during poor market conditions.