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The underlying motivational process behind portfolio diversification choice decisions of individual investors: An experimental design

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  • Sengupta, Atri
  • Deb, Soumya Guha
  • Mittal, Shashank

Abstract

The present study explores the underlying motivational process and their boundary conditions behind portfolio (asset class) diversification choice decisions through the lenses of ‘regulatory focus’ and ‘regulatory fit’ theories. The study specifically focuses on how such choice decisions differ across chronic (trait) and situational (state) goal-orientation conditions. We use an experimental research design with a survey-based sample of 586 respondents and a two-way ANOVA test for analyzing data collected in two phases. Our principal findings are as follows: (i) investors with chronic promotion (prevention) conditions adopt wider (narrower) portfolio choices; (ii) in convergent promotion (prevention) conditions, they espouse wider (narrower) portfolio choices as compared to the chronic conditions; and (iii) in convergent promotion (prevention) conditions, they prefer wider (narrower) choices than in the divergent conditions. We support our findings by a detailed discussion along with the theoretical and managerial implications.

Suggested Citation

  • Sengupta, Atri & Deb, Soumya Guha & Mittal, Shashank, 2021. "The underlying motivational process behind portfolio diversification choice decisions of individual investors: An experimental design," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    • Handle: RePEc:eee:beexfi:v:29:y:2021:i:c:s2214635020303816
    DOI: 10.1016/j.jbef.2020.100452
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