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.