Financial Overconfidence Over Time: Foresight, Hindsight, and Insight of Investors
59 Pages Posted: 8 Feb 2012 Last revised: 8 Dec 2017
Date Written: November 10, 2016
Abstract
Overconfidence leads to increased trading activity, higher risk taking, and less diversification. In a panel survey of online brokerage clients, we ask for stock market and portfolio expectations and derive several overconfidence measures from the responses. Overconfidence is present in our sample in various forms. By matching survey data with investors' actual 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 overconfidence in line with learning to be overconfident.
Keywords: Overconfidence, Trading, Diversification, Risk Taking, Expectations, Hindsight
JEL Classification: G02, G11
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Investor Competence, Trading Frequency, and Home Bias
By John R. Graham, Campbell R. Harvey, ...
-
Investor Competence, Trading Frequency, and Home Bias
By John R. Graham, Campbell R. Harvey, ...
-
Sensation Seeking, Overconfidence, and Trading Activity
By Mark Grinblatt and Matti Keloharju
-
Talk and Action: What Individual Investors Say and What They Do
By Daniel Dorn and Gur Huberman
-
Overconfidence and Trading Volume
By Markus Glaser and Martin Weber
-
Overconfidence and Trading Volume
By Markus Glaser and Martin Weber
-
Overconfidence and Trading Volume
By Markus Glaser and Martin Weber
-
Overconfidence and Trading Volume
By Markus Glaser and Martin Weber
-
An Experimental Test of the Impact of Overconfidence and Gender on Trading Activity
By Richard Deaves, Erik Lueders, ...