Journal
JOURNAL OF BANKING & FINANCE
Volume 84, Issue -, Pages 68-87Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jbankfin.2017.07.009
Keywords
Overconfidence; Trading; Diversification; Risk taking; Expectations
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Funding
- European Institute of Savings (OEE), Paris, France
- Deutsche Forschungsgemeinschaft [WE993]
- Stiegler Foundation, Mannheim, Germany
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Financial overconfidence leads to increased trading activity, higher risk taking, and less diversification. In a panel survey of online brokerage clients in the UK, we ask for stock market and portfolio expectations and derive several overconfidence measures from the responses. Overconfidence is identified in the sample in various forms. By matching survey data with participants' transactions and portfolio holdings, we find an influence of overplacement on trading activity, of overprecision and overestimation on diversification, and of overprecision and overplacement on risk taking. We explore the evolution of overconfidence over time and identify a role of past success and hindsight on subsequent investor overconfidence in line with learning to be overconfident. (C) 2017 Elsevier B.V. All rights reserved.
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