The individual investor risk premium puzzle under heterogeneous risktolerances Evidence from the Dutch retail investor community for theperiod 2003 – 2009

  • Sander Epema Sander Epema

This thesis compares the risk adjusted monthly returns of retail investor trading account of a top-five European brokerage firm. The studied sample comprises over 3.000 Dutch retail investors that strictly trade equities for the bull market period 2003 – 2009. Analysis of portfolio Sharpe ratios show the existence of an individual investor equity risk premium under heterogeneous risk tolerances. Second, investor ability is analysed by means of investorportfolios’ Information ratios and Treynor ratios. Individual investors possess ability to track, and also to beat their benchmark. These findings contradict that individual investors trade totheir detriment, as most recently postulated by Barber, Lee, Liu, and Odean [2009].

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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