Trading and Under-Diversification

51 Pages Posted: 16 Jan 2006 Last revised: 18 Jun 2013

Date Written: April 25, 2008


This paper documents a link between trading and diversi cation by using detailed trading records from a Swedish discount broker matched to individual tax records. Investors' diversification is measured by stake size, defined as the fraction of their risky financial wealth invested in individual stocks at the broker under study. High stake investors have concentrated portfolios, trade more, and achieves lower trading performance. They share several features with those who trade excessively: they have lower income, wealth, age, and education, suggesting that they lack investment expertise. The results directly imply that trading losses in the cross-section mainly are borne by those who can least afford them.

Keywords: Investor behavior, stock trading, overconfidence, under-diversification

JEL Classification: G11, D14, C24

Suggested Citation

Anderson, Anders, Trading and Under-Diversification (April 25, 2008). Forthcoming, Review of Finance, AFA 2007 Chicago Meetings Paper, EFA 2007 Ljubljana Meetings Paper, Available at SSRN: or

Anders Anderson (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm

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