Investors are often seen as choosing portfolios based on their preferences. Each decides how much risk to take, allocates between stocks and safe assets, and builds a portfolio that reflects their beliefs. But in reality, observed portfolios tell only part of the story. Many investors who could invest in stocks simply do not, even when theory suggests they should. This paper introduces a new perspective. Portfolio choices are not driven by preferences alone, they are also shaped by frictions, sm...
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