Research


Working papers

  • "What determines mutual fund flows of retail investors?" w/ Bjarne Florentsen, Peter Raahauge and Jesper Rangvid. November 2017. See coverage in Danish media: Berlingske.
    A large literature examines the relation between past performance of mutual funds and subsequent mutual fund flows; the ‘performance-flow relation’. We argue that a main determinant of retail investors’ mutual fund flows is one not having received sufficient attention: The establishment of a relation between retail investors and banks. To show this, we analyse comprehensive register-based data on Danish individual investors’ mutual fund investments and their bank connections. We analyse investors forced to switch bank for exogenous reasons: their banks ceased existence following the 2008 financial crisis. We show that a switch of bank causes investors to switch mutual funds. The flows are massive, but investors end up with new funds that perform similarly to the ones they held before their switch of bank. We also find that, following a switch of bank, investors buy funds that are performing no better than the average fund on the market. We conclude that the establishment of a relation between a bank and a customer causes large fund flows, but the flows are unrelated to performance. Outside periods following bank shifts, investors buy well-performing funds. 
  • "Turning Local: Home-bias dynamics of relocating foreigner" w/ Bjarne Florentsen, Peter Raahauge and Jesper Rangvid. October 2017. See coverage in Danish media: BerlingskeBørsenPengenyt.
    Using a comprehensive dataset including the total adult population of a county (Denmark), in aggregate approximately 4.3 million individuals per year, we study private investors' preferences for domestic stocks. We compare the equity home bias of foreigners recently relocated to Denmark to the equity home bias of other investors. We find that home bias of recently relocated foreigners is lower than home bias of other investors. Our main result is that when relocated foreigners' duration of stay increases, their home bias also increases. After 7-8 years, home bias of relocated foreigners does not differ from home bias of other investors. We discuss implications for explanations of the home-bias puzzle.
  • "The aggregate cost of equity underdiversification" w/ Bjarne Florentsen, Peter Raahauge and Jesper Rangvid. September 2017. See coverage in Danish media: BørsenTV2.
    We analyse equity diversification of all retail investors in a country (Denmark). We find that 66% of investors hold one stock only, the average number of stocks held by investors is 1.9, and less than two percent of investors hold more than ten different stocks. Underdiversification is thus pervasive. Our main contribution is that we calculate the nationwide aggregate loss due to underdiversification. We express the loss as the expected return foregone because of underdiversification. We find that the aggregate return of all investors can potentially be increased by more than three percentage points per year, without increasing risk, if moving to fully diversified portfolios. We also find that investors with concentrated portfolios hold a small fraction of the total stock market capitalization, but bear a large fraction of the cost of insufficient diversification.


Selected publications