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What leads to overtrading and under-diversification? Survey evidence from retail investors in an emerging market

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  • Phan, Thuy Chung
  • Rieger, Marc Oliver
  • Wang, Mei

Abstract

Using detailed survey data of 620 Vietnamese investors, we examine the characteristics and behavioral patterns that lead to overtrading and under-diversification. We also investigate factors that affect the proportion of wealth in equity investment. In particular, we study the effect of overconfidence, social transmission, time discounting, self-reported risk tolerance, the frequency at which investors evaluate their investment portfolios and other individual characteristics such as gender, age, education, and wealth. We confirm previous findings on their connections also in the new setting of an emerging market. Moreover, we find positive evidence for a social transmission bias on under-diversification and that of overconfidence on equity allocation, and for both overconfidence and evaluation frequency on overtrading. The results are of practical value and may help to reduce excessive trading and under-diversification.

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  • Phan, Thuy Chung & Rieger, Marc Oliver & Wang, Mei, 2018. "What leads to overtrading and under-diversification? Survey evidence from retail investors in an emerging market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 19(C), pages 39-55.
    • Handle: RePEc:eee:beexfi:v:19:y:2018:i:c:p:39-55
    DOI: 10.1016/j.jbef.2018.04.001
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    More about this item

    Keywords

    Emerging markets; Overtrading; Under-diversification; Equity holdings; Overconfidence; Social transmission bias; Hyperbolic time discounting; Evaluation frequency; Risk tolerance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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