Are All Professional Investors Sophisticated?
Article first published online: 26 OCT 2009
© 2010 The Authors. German Economic Review © 2010 Verein für Socialpolitik
German Economic Review
Volume 11, Issue 4, pages 418–440, November 2010
How to Cite
Menkhoff, L., Schmeling, M. and Schmidt, U. (2010), Are All Professional Investors Sophisticated?. German Economic Review, 11: 418–440. doi: 10.1111/j.1468-0475.2009.00497.x
- Issue published online: 26 OCT 2009
- Article first published online: 26 OCT 2009
- Institutional investors;
- investment advisors;
- individual investors;
- investment behavior
Abstract. Existing empirical evidence is inconclusive as to whether professional investors show more sophisticated behavior than individual investors. Therefore, we study two important groups of professional investors and compare them with laymen by means of a survey covering about 500 investors. We find that some professionals, i.e. institutional investors, behave in a more sophisticated manner than laymen, whereas the less researched investment advisors seem to do even worse. Our survey approach complements available evidence due to its design: it compares professionals with (qualified) interested laymen, it covers six measures of sophisticated behavior, uses several control variables and strictly compares investment decisions in the private domain.