Wednesday, March 22nd, 2017 12:13 pm

Diversified Investing

In general, absent any inside information, an equity investor can expect to do better by holding a well-diversified, low-fee, passive index fund than by holding a few stocks.

Responses
 

Source: European IGM Economic Experts Panel
www.igmchicago.org/european-economic-experts-panel

Responses weighted by each expert's confidence

Source: European IGM Economic Experts Panel
www.igmchicago.org/european-economic-experts-panel
Participant University Vote Confidence Comment Bio/Vote History
Aghion Philippe Aghion Harvard Did Not Answer
Bio/Vote History
         
Allen Franklin Allen Imperial College London Agree 8
In the absence of inside information, on average a diversified strategy should do better unless the person has good judgment.
Bio/Vote History
         
Antras Pol Antras Harvard Strongly Agree 9
Unless the investor is a risk lover
Bio/Vote History
         
Baldwin Richard Baldwin The Graduate Institute Geneva Did Not Answer
Bio/Vote History
         
Besley Timothy J. Besley LSE Did Not Answer
Bio/Vote History
         
Blanchard Olivier Blanchard Peterson Institute Strongly Agree 9
This is a no brainer. The only qualification is that the diversified portfolio may not be exactly the market portfolio.
Bio/Vote History
         
Bloom Nicholas Bloom Stanford Agree 8
This is the prediction of our basic "no free lunch principle". All my savings are in index tracker, so i am living this view!
Bio/Vote History
         
Blundell Richard William Blundell University College London Did Not Answer
Bio/Vote History
         
Bénassy-Quéré Agnès Bénassy-Quéré Paris School of Economics Strongly Agree 9
Bio/Vote History
         
Carletti Elena Carletti Bocconi Agree 8
Bio/Vote History
         
Danthine Jean-Pierre Danthine Paris School of Economics Strongly Agree 10
Bio/Vote History
         
De Grauwe Paul De Grauwe LSE Agree 8
Bio/Vote History
         
Eeckhout Jan Eeckhout University College London Strongly Agree 10
Bio/Vote History
         
Fehr Ernst Fehr Universität Zurich Did Not Answer
Bio/Vote History
         
Freixas Xavier Freixas Universitat Pompeu Fabra Did Not Answer
Bio/Vote History
         
Fuchs-Schündeln Nicola Fuchs-Schündeln Goethe-Universität Frankfurt Strongly Agree 8
Bio/Vote History
         
Galí Jordi Galí Universitat Pompeu Fabra Agree 8
I agree with the statement as "doing better" is interpreted to mean enjoying a higher average return for any given level of risk.
Bio/Vote History
         
Garicano Luis Garicano LSE Strongly Agree 10
Bio/Vote History
         
Giavazzi Francesco Giavazzi Bocconi Did Not Answer
Bio/Vote History
         
Griffith Rachel Griffith University of Manchester Agree 8
Bio/Vote History
         
Guerrieri Veronica Guerrieri Chicago Booth Strongly Agree 8
Bio/Vote History
         
Guiso Luigi Guiso Einaudi Institute for Economics and Finance Strongly Agree 8
for a typical investor I strongly believe a passive, cheap index is better than a passive portfolio of a few stocks
Bio/Vote History
         
Hellwig Martin Hellwig Max Planck Institute for Research on Collective Goods Agree 10
The empirical evidence is overwhelming.
Bio/Vote History
         
Honohan Patrick Honohan Trinity College Dublin Strongly Agree 10
"Do better"understood to capture risk as well as expected return, of course.
Bio/Vote History
         
Kleven Henrik Kleven LSE Strongly Agree 7
Bio/Vote History
         
Krahnen Jan Pieter Krahnen Goethe University Frankfurt Strongly Agree 8
A quant hedge fund may extract extra return by big data strategies, but an average guy, like myself, will likely fail with stock-picking.
Bio/Vote History
         
Krusell Per Krusell Stockholm University Strongly Agree 9
I don't know of any convincing systematic evidence to the contrary.
Bio/Vote History
         
Kőszegi Botond Kőszegi Central European University Strongly Agree 9
Bio/Vote History
         
La Ferrara Eliana La Ferrara Bocconi Did Not Answer
Bio/Vote History
         
Leuz Christian Leuz Chicago Booth Strongly Agree 9
Lots of evidence. Few people consistently earn risk-adj. ret > index ret. And even then, much might be compensation for time & effort.
-see background information here
Bio/Vote History
         
Meghir Costas Meghir Yale Strongly Agree 10
Bio/Vote History
         
Neary Peter Neary Oxford Strongly Agree 8
A small industry exists to help naive investors beat the market. It should be subject to mandatory health warnings.
Bio/Vote History
         
O'Rourke Kevin O'Rourke Oxford Agree 7
Bio/Vote History
         
Pagano Marco Pagano Università di Napoli Federico II Strongly Agree 10
A no-brainer.
Bio/Vote History
         
Pastor Lubos Pastor Chicago Booth Strongly Agree 10
I interpret "do better" in terms of a better risk-return tradeoff. Why take unnecessary idiosyncratic risk.
Bio/Vote History
         
Persson Torsten Persson Stockholm University Agree 6
Bio/Vote History
         
Pissarides Christopher Pissarides LSE Strongly Agree 10
Even if you get it right some of the time eventually you will get it wrong
Bio/Vote History
         
Portes Richard Portes London Business School Agree 6
Bio/Vote History
         
Prendergast Canice Prendergast Chicago Booth Strongly Agree 9
Bio/Vote History
         
Reichlin Lucrezia Reichlin London Business School Agree 6
Bio/Vote History
         
Repullo Rafael Repullo CEMFI Strongly Agree 10
Bio/Vote History
         
Rey Hélène Rey London Business School Did Not Answer
Bio/Vote History
         
Schoar Antoinette Schoar MIT Strongly Agree 9
Bio/Vote History
         
Van Reenen John Van Reenen MIT Strongly Agree 7
Bio/Vote History
         
Vickers John Vickers Oxford Agree 6
Assuming a degree of risk aversion. However some investors might rationally want some exposure to assets not available passively.
Bio/Vote History
         
Voth Hans-Joachim Voth University of Zurich Strongly Agree 9
Just look at the long-term Warren Buffett bet against managed funds -- whenever there is outperformance, fees eat them up
-see background information here
Bio/Vote History
         
Weder di Mauro Beatrice Weder di Mauro Gutenberg University Mainz and INSEAD Agree 5
Bio/Vote History
         
Whelan Karl Whelan University College Dublin Strongly Agree 10
Bio/Vote History
         
Wyplosz Charles Wyplosz The Graduate Institute Geneva Strongly Agree 9
Bio/Vote History
         
Zilibotti Fabrizio Zilibotti Universität Zurich Agree 9
Bio/Vote History
         

About the European IGM Economic Experts Panel

This panel explores the views of European economists on vital public policy issues. It does this by polling them on important policy questions, by including a way for them to explain their answers briefly if they wish, and by disseminating these responses directly to the public in a simple format.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the main areas of economics, to be geographically diverse, and to include older and younger scholars. As with the IGM’s US panel, the experts are all outstanding researchers in their fields. The panel includes recipients of top national and international prizes in economics, fellows of the Econometric society and the European Economic Association, members of distinguished national and international policymaking bodies in Europe, recipients of significant grants for economic research, highly accomplished affiliates and program directors of the Centre for Economic Policy Research and the National Bureau of Economic Research, and past and current editors of leading academic journals in the profession. This approach not only provides a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters in Europe and beyond.

Questions for the European IGM Economic Experts Panel are emailed individually to all members of the panel. They are phrased as statements with which one can agree or disagree. The experts are also asked how confident they are in their knowledge of the issue associated with the question (10 being highest). Each panelist responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering. They may also include brief comments with their responses, or provide links to relevant sources.

It is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist knows a lot about a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's knowledge that he or she does not feel well placed to judge. In this case, our panelists vote "no opinion".

Panelists suggest many of the questions themselves. Members of the public are also welcome to suggest questions (see link below). Although IGM faculty members are responsible for deciding the final version of each question, we send a draft of the question to the panel in advance and invite them to point out problems with the wording if they see any. This process helps us to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and will be analyzed for an article to appear in a peer-reviewed journal.

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