Skewness expectations and portfolio choice

• Published in: Experimental economics : a journal of the Economic Science Association Vol. 26; no. 1; pp. 107 - 144
• Main Authors: Drerup, Tilman H., Wibral, Matthias, Zimpelmann, Christian
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.03.2023; Springer Nature B.V
• Subjects: Assets; Behavioral economics; Behavioral/Experimental Economics; Economic theory; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Expected utility; Experiments; Financial literacy; Game Theory; Index funds; Investments; Investor behavior; Microeconomics; Operations Research/Decision Theory; Original Paper; Portfolio management; Preferences; Respondents; Securities markets; Skewness; Social and Behav. Sciences; Sociodemographics; Standard deviation; Stock exchanges; D84; D14; G11; Skewness; Portfolio choice; G02; Stock market expectations; Behavioral finance
• ISSN: 1386-4157; 1573-6938
• DOI: 10.1007/s10683-022-09780-9

Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We elicit detailed return expectations for a broad index fund and a single stock in a representative sample of the Dutch population. The data show substantial heterogeneity in individuals’ skewness expectations of which only very little is captured by sociodemographics. Across assets, most respondents expect a higher variance and skewness for the individual stock compared to the index fund. Portfolio allocations increase with the skewness of respondents’ return expectations for the respective asset, controlling for other moments of a respondent’s expectations.