Naïve Buying Diversification and Narrow Framing by Individual Investors / John Gathergood, David Hirshleifer, David Leake, Hiroaki Sakaguchi, Neil Stewart.

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Gathergood, John

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w25567.Publication details: Cambridge, Mass. National Bureau of Economic Research 2019.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We provide the first tests to distinguish whether individual investors equally balance their overall portfolios (naïve portfolio diversification--NPD) or engage in naïve buying diversification (NBD)--equally balancing values in same-day purchases of multiple assets. We find NBD in purchases of multiple stocks, and in mixed purchases of individual stocks and funds. In contrast, there is little evidence of NPD. So investors seem to narrowly frame their buy-day decision. Simulation analysis suggests that NBD substantially reduces investor welfare. These findings suggest that behavioral finance theory should incorporate transactional as well as portfolio framing.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w25567 (Browse shelf(Opens below))	Not For Loan

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February 2019.

We provide the first tests to distinguish whether individual investors equally balance their overall portfolios (naïve portfolio diversification--NPD) or engage in naïve buying diversification (NBD)--equally balancing values in same-day purchases of multiple assets. We find NBD in purchases of multiple stocks, and in mixed purchases of individual stocks and funds. In contrast, there is little evidence of NPD. So investors seem to narrowly frame their buy-day decision. Simulation analysis suggests that NBD substantially reduces investor welfare. These findings suggest that behavioral finance theory should incorporate transactional as well as portfolio framing.

Naïve *Buying* Diversification and Narrow Framing by Individual Investors / John Gathergood, David Hirshleifer, David Leake, Hiroaki Sakaguchi, Neil Stewart.

Naïve Buying Diversification and Narrow Framing by Individual Investors / John Gathergood, David Hirshleifer, David Leake, Hiroaki Sakaguchi, Neil Stewart.