Investor Competence, Trading Frequency, and Home Bias

41 Pages Posted: 7 Jul 2005 Last revised: 22 Sep 2010

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Hai Huang

Duke University - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 2005

Abstract

People are more willing to bet on their own judgments when they feel skillful or knowledgeable (Heath and Tversky (1991)). We investigate whether this "competence effect" influences trading frequency and home bias. We find that investors who feel competent trade more often and have a more internationally diversified portfolio. We also find that male investors, and investors with higher income or more education, are more likely to perceive themselves as competent investors than are female investors, and investors with lower income or less education. Our results are unlikely to be explained by other hypotheses, such as overconfidence or information advantage. Finally, we separately establish a link between optimism towards the home market and international portfolio diversification.

Suggested Citation

Graham, John Robert and Harvey, Campbell R. and Huang, Hai, Investor Competence, Trading Frequency, and Home Bias (June 2005). NBER Working Paper No. w11426. Available at SSRN: https://ssrn.com/abstract=745819

John Robert Graham

Duke University ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hai Huang

Duke University - Finance ( email )

Durham, NC 27708-0120
United States

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