We provide the first tests to distinguish whether individual investors equally balance their overall portfolios (naïve portfolio diversification-NPD) or, in contrast, equally balance the values of same-day purchases of multiple assets (naïve buying diversification-NBD). 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. Evidence suggest NBD arises due to stock picking behaviour and neglect of diversification. These findings suggest that behavioral finance theory should incorporate transaction as well as portfolio framing.
Gathergood, J., Hirshleifer, D., Leake, D., Sakaguchi, H., & Stewart, N. (in press). Naïve Buying Diversification and Narrow Framing by Individual Investors. Journal of Finance, https://doi.org/10.1111/jofi.13222