Naïve Buying Diversification and Narrow Framing by Individual Investors

83 Pages Posted: 21 Oct 2017 Last revised: 14 Oct 2022

See all articles by John Gathergood

John Gathergood

University of Nottingham - School of Economics

David A. Hirshleifer

Marshall School of Business, USC; National Bureau of Economic Research (NBER)

David Leake

Independent

Hiroaki Sakaguchi

affiliation not provided to SSRN

Neil Stewart

Warwick Business School, University of Warwick

Date Written: October 14, 2022

Abstract

We provide the first tests to distinguish whether individual investors equally balance their overall portfolios (naive portfolio diversification - NPD) or, in contrast, equally balance the values of same-day purchases of multiple assets (naive buying diversification - NBD). We find NBD in purchases of multiple stocks, and in mixed purchases of individual stocks and funds. In contrast, there is little evidence of NPD. Evidence suggest NBD arises due to stock picking behaviour and neglect of diversification. These findings suggest that behavioral finance theory should incorporate transaction as well as portfolio framing.

Keywords: investor behavior, portfolio allocation, naive diversification, narrow framing

JEL Classification: G11, G12, G02, D14, D91

Suggested Citation

Gathergood, John and Hirshleifer, David A. and Leake, David and Sakaguchi, Hiroaki and Stewart, Neil, Naïve Buying Diversification and Narrow Framing by Individual Investors (October 14, 2022). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3056254 or http://dx.doi.org/10.2139/ssrn.3056254

John Gathergood (Contact Author)

University of Nottingham - School of Economics ( email )

Sir Clive Granger Building
University Park
Nottingham, NG7 2RD
United Kingdom

HOME PAGE: http://https://sites.google.com/site/gathergoodjohn/

David A. Hirshleifer

Marshall School of Business, USC ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.uci.edu/dhirshle/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

David Leake

Independent ( email )

Hiroaki Sakaguchi

affiliation not provided to SSRN

Neil Stewart

Warwick Business School, University of Warwick ( email )

Gibbet Hill Road
Coventry, West Midlands CV4 8UW
United Kingdom

HOME PAGE: http://www.stewart.warwick.ac.uk

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
527
Abstract Views
4,493
Rank
97,072
PlumX Metrics