Bazley, William J. and Korniotis, George M. and Samanez-Larkin, Gregory R., Better Together: The Effects of Experience and Knowledge on Investor Behavior (September 7, 2016). Available for download at SSRN: http://ssrn.com/abstract=2846504

“We examine the dynamics of financial knowledge and investment experience on the equity portfolio decisions of U.S. investors. We find that prior portfolio choices influence investors’ future decisions. The most influential prior choices are those made near the time when the investor starts trading and in the most recent period. However, experience matters. Specifically, investors hold more stocks, reduce purchase turnover, earn higher returns, and increase the Sharpe Ratios of their portfolios as they accrue investment experience. In contrast, general financial knowledge by itself does not influence investor behavior. Rather, knowledge affects equity portfolio decisions in combination with experience. That is, as knowledgeable investors gain experience, they improve both portfolio construction and account performance.”