Question A:
In general, absent any proprietary information, a retail equity investor cannot consistently make accurate predictions about whether the price of an individual stock will rise or fall on a given day.
Responses
Responses weighted by each expert's confidence
Question B:
In general, absent any proprietary information, a retail equity investor can expect to do better by holding a well-diversified, low-fee, passive index fund than by holding a few stocks.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 John Campbell |
Harvard | Bio/Vote History | ||
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This is certainly true for liquid stocks, although for certain illiquid stocks "bid-ask bounce" can generate predictable daily movements (but one cannot profit from these).
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 John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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If the average investor (weighted by wealth) could predict the stock to rise, the stock would go up right away. Half of the predictions must be wrong.
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 Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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 Wenxin Du |
HBS | Bio/Vote History | ||
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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Market clearing generally implies that the price reflects commonly available information.
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 Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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 Eugene Fama |
Chicago Booth | Bio/Vote History | ||
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 Xavier Gabaix |
Harvard | Bio/Vote History | ||
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 Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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 John Graham |
Duke Fuqua | Bio/Vote History | ||
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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 Harrison Hong |
Columbia | Bio/Vote History | ||
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 Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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Everyone should have to read Ken French's Presidential Address to the American Finance Association on the perils of active investing.
-see background information here |
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 Ralph Koijen |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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 Andrew Lo |
MIT Sloan | Bio/Vote History | ||
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The competition in this endeavor, just among the top 10 investment banks, is intense, not to mention the hedge-fund industry, so retail investors don't have a chance.
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 Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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 Matteo Maggiori |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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 Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
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 Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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Forecasting daily returns is extremely difficult since daily price changes are dominated by news and noise, which are both unpredictable.
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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There is some predictability in a stock's return at longer horizons, but a retail investor cannot consistently predict stock movements day to day. The vast majority of day to day stock price movements are unpredictable even to experts with proprietary information.
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 Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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 Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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 Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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 Paola Sapienza |
Hoover Institution Stanford | Bio/Vote History | ||
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 Amit Seru |
Stanford GSB | Bio/Vote History | ||
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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 Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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 Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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ample empirical evidence that retail investors systematically underperform
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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John Campbell |
Harvard | Bio/Vote History | ||
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With equal expected returns, diversification reduces risk and is one of the few "free lunches" in economics. And typical retail investors can't increase their expected returns through stock-picking. They may benefit from factor exposure but that remains diversified.
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Again, the average investor theorem proves this must be true on average.
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Francesca Cornelli |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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Wenxin Du |
HBS | Bio/Vote History | ||
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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From my response to the first question (prices reflect information), for a given return volatility, mean portfolio returns are improved less by stock selection than by levered diversified positions. (Bill Sharpe)
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Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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Eugene Fama |
Chicago Booth | Bio/Vote History | ||
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Do better is too vague.
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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The question is what does "do better" mean? The investor might have lottery-like preferences leading to an undiversified portfolio.
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Harrison Hong |
Columbia | Bio/Vote History | ||
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Wei Jiang |
Emory Goizueta | Bio/Vote History | ||
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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Great advice for almost everyone. We should all thank Jack Bogle
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Ralph Koijen |
Chicago Booth | Did Not Answer | Bio/Vote History | |
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Bio/Vote History | ||
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The historical data are pretty clear on this point, especially over investment periods longer than a few years. Obviously, within shorter samples, anything can happen.
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Matteo Maggiori |
Stanford GSB | Did Not Answer | Bio/Vote History | |
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Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
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Tobias Moskowitz |
Yale School of Management | Bio/Vote History | ||
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I’m assuming by “better” we mean on a risk-adjusted basis or for cumulative wealth. Holding a well-diversified portfolio at the same expected return is better for accumulating wealth over long horizons. A single stock with the same return and much higher vol. is worse.
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Hoover Institution Stanford | Bio/Vote History | ||
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Bio/Vote History | ||
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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