Investor Education and Portfolio Diversification on the Stock Market

Kristjan Liivamägi


This study analyses how the educational characteristics affect investors’ portfolio diversification on the stock market. I use a unique dataset from the Tallinn stock exchange, covering stock market transactions of a full business cycle from 2004 to 2012, with an official educational dataset. Having controlled for gender, age, wealth and investor trading behaviour, I provide empirical evidence that investors with higher academic education and top results in national high school exams in mathematics, mother tongue and geography hold more diversified portfolios. In addition, investors holding a degree in natural sciences, mathematics or statistics hold more diversified portfolios compared to investors with no such educational characteristics. Furthermore, investors with poor results in their mathematics and mother tongue exams and investors with no academic university degree hold less diversified portfolios. Analysing investors’ risk-adjusted performance reveals that higher portfolio diversification is significant factor contributing to higher returns on the stock market.

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