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Naïve Buying Diversification and Narrow Framing by Individual Investors

Gathergood, John; Hirshleifer, David; Leake, David; Sakaguchi, Hiroaki; Stewart, Neil

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Authors

David Hirshleifer

David Leake

Hiroaki Sakaguchi

Neil Stewart



Abstract

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 suggests that NBD arises due to stock picking behavior and neglect of diversification. These findings suggest that behavioral finance theory should incorporate transaction, as well as portfolio,framing.

Journal Article Type Article
Acceptance Date Jun 8, 2022
Online Publication Date Mar 20, 2023
Publication Date 2023-06
Deposit Date Oct 17, 2022
Publicly Available Date Mar 20, 2023
Journal Journal of Finance
Print ISSN 0022-1082
Electronic ISSN 1540-6261
Peer Reviewed Peer Reviewed
Volume 78
Issue 3
Pages 1705-1741
DOI https://doi.org/10.1111/jofi.13222
Keywords Economics and Econometrics; Finance; Accounting
Public URL https://nottingham-repository.worktribe.com/output/12599336
Publisher URL https://onlinelibrary.wiley.com/doi/10.1111/jofi.13222

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