A Behavioural Analysis of Investor Diversification
European Journal of Finance (2013)
40 Pages Posted: 11 May 2012 Last revised: 19 Dec 2013
Date Written: May 11, 2012
This paper studies the link between individual investors’ portfolio diversification levels and various personal traits that proxy informational advantages and overconfidence. The analysis is based on objective data from the largest Turkish brokerage house tracking 59,951 individual investors’ accounts with a total of 3,248,654 million transactions over the period 2008-2010. Wealthier, highly educated, older investors working in the finance sector and those trading relatively often show higher diversification levels possibly because they are better equipped to obtain and process information. Finance professionals, married investors, and those placing high-volume orders through investment centers show poorer diversification possibly as a reflection of overconfidence. Our analysis reveals important nonlinear effects implying that the marginal impact of overconfidence on diversification is not uniform across investors but varies according to the investor’s information gathering and processing abilities.
Keywords: Individual investor, Behavioural finance, Diversification, Portfolio risk, Emerging market
JEL Classification: G01, G11, G24
Suggested Citation: Suggested Citation