KNOW YOUR CLIENT! INVESTOR PROFILE AND TAILOR-MADE ASSET ALLOCATION RECOMMENDATIONS

Authors


  • We are extremely grateful for the encouragement of the editor, Gerald Gay, and for the comments and insights of Conrad Ciccotello (the referee), George Athanassakos, Enrico Maria Cervellati, Keith Cuthbertson, Gur Huberman, and Hersh Shefrin. We have benefited from the comments of participants at the Financial Management Association annual meeting, October 2007, Orlando, Florida.

Abstract

We study how the investor profile influences the asset allocation recommendations of professional advisors. We find the investor's perceived risk attitude influences more the mix of risky assets, whereas the socioeconomic variables influence more the cash percentage. The recommendations are consistent with a diversification behavior driven by actual asset correlations. These findings support the utility of investor advisory that may help enhance the risk and return trade-off. The main drawback of the recommendations may consist in the degree of customization that is limited by the small number of investor characteristics actually influencing the asset allocation.

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