Talk and Action: What Individual Investors Say and What They Do

Review of Finance, Vol. 9, Nr. 4, pp. 437-481, 2005

56 Pages Posted: 12 Oct 2012

See all articles by Daniel Dorn

Daniel Dorn

Drexel University - Department of Finance

Gur Huberman

Columbia Business School - Finance and Economics

Date Written: October 6, 2005

Abstract

Combining survey responses and trading records of clients of a German retail broker, this paper examines some of the causes for the apparent failure to buy and hold a well-diversified portfolio. The subjective investor attributes gleaned from the survey help explain the variation in actual portfolio and trading choices. Self-reported risk aversion is the single most important determinant of both portfolio diversification and turnover; other things equal, investors who report being more risk tolerant hold less diversified portfolios and trade more aggressively. Less experienced investors similarly tend to churn poorly diversified portfolios. The effect of perceived knowledge on portfolio choice is less clear cut; holding other attributes constant, investors who think themselves knowledgable about financial securities indeed hold better diversified portfolios, but those who think themselves more knowledgable than the average investor churn their portfolios more.

Suggested Citation

Dorn, Daniel and Huberman, Gur, Talk and Action: What Individual Investors Say and What They Do (October 6, 2005). Review of Finance, Vol. 9, Nr. 4, pp. 437-481, 2005. Available at SSRN: https://ssrn.com/abstract=2160997

Daniel Dorn (Contact Author)

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States

Gur Huberman

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

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