Education and investment perfomance of individual investors

Traditional models in financial economics assume that investors` behavior is guided by rational choices, i.e., agents maximize expected utility for given risk preferences. While this model is very powerful and helps us to understand many trade-offs and investment choices, empirical research has discovered many phenomena or anomalies that cannot be explained by expected utility maximization. This inability is addressed by behavioral models which build on well established behavioral rules when analyzing financial investments. The proposed research project empirically evaluates the relationship between the level of education of individual investors and their stock investment performance. We use daily data associated with individual investors` accounts from two different Austrian online brokers. The data cover the sample period from 2001 to the present and consist of two files. The first file comprises detailed account information that includes the initial portfolio composition, the trading history and prices of traded stocks. The second file includes socio-demographic information such as age, gender, education, citizenship, residence, and academic degree, data that have to be revealed when opening an account with an online broker. The empirical analysis of this project is divided into two main parts. The first part examines the stock investments of Austrian individual investors. In particular, we will look at the performance of investors with different characteristics, the degree of diversification, and the trading frequency. The second part looks at the relationship between education and stock investment performance. We use the academic/professional degree of investors as a proxy for different levels of education and investigate the relationship between education and investment performance of individuals. We first test the hypothesis if university graduates deliver a higher investment performance than non-graduates. Secondly, we classify investors on the basis of their professional degrees (graduates with economics degrees, or a degree in science and engineering, etc.) and statistically evaluate the investment performance for these distinct groups of investors. Finally, we look at different gender-specific issues and try to analyze if male investment behavior systematically differs from female one. In particular, we are interested in differences in trading frequency, or differences related to specific educational backgrounds such as university degrees.