Abstract

http://ssrn.com/abstract=2001513
 
 

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Financial Overconfidence Over Time - Foresight, Hindsight, and Insight of Investors


Christoph Merkle


University of Mannheim - Department of Banking and Finance

August 31, 2013

AFA 2013 San Diego Meetings Paper
EFA 2012 Copenhagen Meetings Paper

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 degree of 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 degree of overconfidence.

Number of Pages in PDF File: 47

Keywords: Overconfidence, Trading, Diversification, Risk Taking, Expectations, Hindsight

JEL Classification: G02, G11

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Date posted: February 8, 2012 ; Last revised: September 2, 2013

Suggested Citation

Merkle, Christoph, Financial Overconfidence Over Time - Foresight, Hindsight, and Insight of Investors (August 31, 2013). AFA 2013 San Diego Meetings Paper; EFA 2012 Copenhagen Meetings Paper. Available at SSRN: http://ssrn.com/abstract=2001513 or http://dx.doi.org/10.2139/ssrn.2001513

Contact Information

Christoph Merkle (Contact Author)
University of Mannheim - Department of Banking and Finance ( email )
L5, 2
Mannheim, 68131
Germany
0049-621-181-1531 (Phone)
0049-621-181-1534 (Fax)
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