I Ion
19 important questions on I Ion
What are some of the factors that explain investor portfolio tilts towards new factors?
- Indebtedness
- Macroeconomic exposure
- Age
- Gender
- Education
- Investment experience
- Hedging motives
- Sentiment
How are pricing factors recovered from a heterogeneous set of investor portfolios?
- Returns on portfolio factors explain cross-section of returns
- Pricing factors can be recovered from sufficiently heterogeneous investor portfolios
What can drive the cross-section of investor portfolios and equity returns according to financial theory?
- Age and wealth likely to influence investor portfolios and equity returns
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How are investor-based equity factors constructed for Norwegian retail investors?
- Panel contains disaggregated holdings and socioeconomic characteristics
- Ownership record covers over 400 stocks listed on the Oslo Stock Exchange
What are some characteristics used to define an investor factor in the study?
- Wealth characteristic based on average net worth of stock's investors
- Investor factor is a portfolio that is long stocks in top 30% and short stocks in bottom 30%
What do the results show about the average returns generated by age and wealth factors?
- Monthly CAPM alphas of age and wealth factors are 1.06% and 0.98% respectively over the period
How is the cross-section of equity premia specified in the study?
- Model matches pricing ability of traditional factors
- Spanning tests verify size, value, investment, profitability, and momentum factors are spanned by the three-factor model
How does the study's three-factor model perform out of sample according to the Fama and French tests?
- Combining investor and firm factors increased out-of-sample Sharpe ratio to 0.84
- Investor factors expand mean-variance frontier compared to firm factors only
What is the average out-of-sample Sharpe ratio of the investor-based model compared to the market in Norway?
- Market's Sharpe ratio in Norway over the sample period is 0.32
What is the purpose of partitioning the sample of investors into two randomly chosen groups in the study?
- One group defines the age and wealth factors, while the other group's investors' factor tilts are measured
How do investors adjust their factor tilts over the life cycle according to the study?
- Even investors in their first year of stock market participation exhibit migration in their portfolio tilts
What influences the factor tilts of investors according to the study's regression analysis?
- Investors with high income beta to GDP, high debt-to-income ratio, and those prone to sentiment such as men or those with short market experience tilt away from factors
How do mature and wealthy investors differ in the characteristics of the firms they hold in their portfolios?
- Young and less wealthy investors are more likely to hold volatile stocks with high share turnover and low institutional ownership
What is the main benefit of constructing equity factors from the portfolios of individual investors?
- Offers rich information about the cross-section of equity premia compared to firm-focused factors
How does the study suggest combining investor and firm factors in practice?
- By combining investor and firm factors, more accurate results can be achieved due to the complementary nature of both types
How does the study suggest that both investor and firm factors can be theoretically used to price the cross-section of stock returns effectively?
- Combining both types of factors is expected to theoretically price the cross-section of stock returns accurately
What is the focus of the study when examining the direct stockholdings of individual investors in relation to equity pricing?
- Unlike focusing on the price impact of trades, the study looks at how investor holdings provide insights into equity pricing sources
What does Büchner (2020) find evidence of when studying data on different U.S. institutional types?
How does the rest of the paper unfold after Section II?
- Section III: Data and construction of age and wealth factors
- Section IV: Assessing investor factors in pricing stock returns
- Section V: Studying drivers of investor portfolio tilts
- Section VI: Conclusion; Online appendix provides proofs and additional empirical results.
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