How Do Decision Frames Influence the Stock Investment Choices of Individual Investors?
AbstractThis study examines whether the framing mode (narrow versus broad) influences the stock investment decisions of individual investors. Motivated by the experimental evidence, which suggests that separate decisions are more likely to be narrowly framed than simultaneous decisions, we propose trade clustering as a proxy for narrow framing. Using this framing proxy, we show that investors who execute more clustered trades exhibit weaker disposition effects and hold better-diversified portfolios. We also find that the degree of trade clustering is related to investors' stock preferences and portfolio returns. Collectively, the evidence indicates that the choice of decision frames is likely to be an important determinant of investment decisions.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 54 (2008)
Issue (Month): 6 (June)
narrow framing; trade clustering; disposition effect; portfolio diversification; prospect theory;
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- Urs Fischbacher & Gerson Hoffmann & Simeon Schudy, 2014.
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2014-01, Department of Economics, University of Konstanz.
- Urs Fischbacher & Gerson Hoffmann & Simeon Schudy, 2014. "The causal effect of stop-loss and take-gain orders on the disposition effect," TWI Research Paper Series 89, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
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