Student-Managed Portfolios: Wisdom of Independent Crowds?

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 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.