`To Have What They are Having': Portfolio Choice for Mimicking Mean-Variance Savers

TL;DR

This paper models a group of mean-variance investors who prefer to mimic each other's portfolios, introducing a mutual fund that aggregates these preferences and demonstrating its benefits for individual investors.

Contribution

It provides an explicit analytical solution for the optimal portfolio of a mimicking investor group and highlights advantages of investing in such a mutual fund.

Findings

Explicit solution for the mutual fund's optimal portfolio weights

Mimicking preferences can improve individual investment outcomes

Investing in the fund benefits investors with social learning motives

Abstract

We consider a group of mean-variance investors with mimicking desire such that each investor is willing to penalize deviations of his portfolio composition from compositions of other group members. Penalizing norm constraints are already applied for statistical improvement of Markowitz portfolio procedure in order to cope with estimation risk. We relate these penalties to individuals' wish of social learning and introduce a mutual fund (investment club) aggregating group member preferences unknown for individual savers. We derive the explicit analytical solution for the fund's optimal portfolio weights and show advantages to invest in such a fund for individuals willing to mimic.