There's quite a bit of research (example, [1]) teasing out the fact that home/casual/individual investors prefer stocks with large positive skewness. It surprised me, as I was reading a bunch of these papers, that no point is made about whether casual investors like to hold stocks with high visibility characteristics (e.g. well known in news, large size, "safe", "blue chip" stocks). My expectation is that there is a bias towards large stocks ... Just going off people in my family, but I would like to see a study of this.

Question: Are you aware of any empirical study that addresses this question?

[1] Household Portfolio Diversification: A case for rank-dependent preferences, by Polkovnichenko (2005)

  • $\begingroup$ I think Fama and French en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_model have found evidence for such a bias. Not just individual/casual investors either. Namely they found that small cap outperforms big, and value outperforms growth. (I think it's likely that stocks with high visibility characteristics and "positive skewness" do tend to be growth stocks, though.) Data on the fraction of institutional ownership for stocks is fairly easily obtainable, too. $\endgroup$
    – justin--
    Nov 1, 2012 at 19:52
  • $\begingroup$ Where does it say that individual/casual investors have a bias towards large or small stocks? $\endgroup$
    – Jase
    Nov 2, 2012 at 1:34
  • $\begingroup$ I said the bias is not limited to individual/casual investors. Institutional investors have a bias toward large caps, as well, for their own reasons. It's the stocks that the market as a whole is biased against that are going to do better. $\endgroup$
    – justin--
    Nov 2, 2012 at 2:40
  • $\begingroup$ @justin All I'm looking for is specific evidence that individual investors are biased against or towards large cap stocks. $\endgroup$
    – Jase
    Nov 2, 2012 at 3:05


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