Abstract

Private investors delegating to institutional investors: Does this mean progress in investment behaviour?

This paper analyses differences in the investment behaviour of private as distinct from institutional investors. To this end, existing empirical studies have been evaluated in a manner permitting such differences to be allocated to elements of the investment process. For private investors, a grave drawback has been identified in respect of the gross yield on account of high risks and high transaction costs. This contrasts clearly with advantages for institutional investors that are to be expected to arise from their specialisation. However, institutional investors are subject to specific agency problems hindering their investment performance. This may explain why the performance of institutional investors falls mostly short of market developments. To that extent, it is to be suspected that the superior investment performance recorded by institutional compared with the private investors is not to be explained by the superior know-how of the former, but by greater diversification and lower transactions costs.