Investors' aspirations and portfolio performance

Based on a large database of individual investors, I analyze the impact of personal financial goals on portfolio performance. I stress the role played by latent investor aspirations as defined in the Behavioral Portfolio Theory framework. I identify two opposite profiles of investors. High-aspirations investors trade more and hold riskier portfolios than the average investor. By contrast, low-aspirations investors are more diversified than the average investor. I find that when controlling for diversification, turnover and usual risk factors, high-aspiration investors underperform their peers, whereas low-aspirations investors outperform them.

- We examine the role of investors' aspirations in portfolio performance.
- Based on the securities traded, two profiles of investors emerge.
- High aspirations investors underperform their peers.
- Low aspirations investors outperform their peers.
- We control for diversification, turnover, risk factors.