Student-Managed Portfolios: Wisdom of Independent Crowds?

Daniel Dorn

Abstract


This study uses a student managed portfolio as a novel setting to examine the effect of crowd wisdom on investment decisions.  Crowd wisdom is measured by peer voting at Drexel University’s Dragon Fund, where student-managers vote to accept or reject each other’s recommendations.  Based on a sample of 202 stock pitches between 2008 and 2016, the main finding is that accepted stocks significantly outperform rejected stocks.  For example, accepted stocks returned 3.0% in excess of their corresponding sector benchmark during the 12 weeks following the recommendation, significantly higher than the negative 2.9% excess returns of rejected stocks.  The results are robust to outliers and considering different evaluation horizons, are not due to size and book-to-market tilts, and cannot be explained by professional observers whose expertise might influence student votes.


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