Entrepreneurial Under-Diversification: Over Optimism and Overconfidence
Our model wants to explain how overconfidence and over optimism lead entrepreneurs to overinvest in their companies, underestimating risks and overestimating expected returns. The entrepreneur has to choose which part of her wealth to invest in her private company and which one in the stock market. Overconfidence and over optimism are parameters in our model, and they bias the entrepreneurâ€™s portfolio allocation. With a simulation analysis, we calculate overconfidence and over optimism levels implicit in the entrepreneurs' observable portfolio, instead of using proxies or indirect measures. Our explicit measure of entrepreneurial under-diversification could be used in empirical analyses.
|Date of creation:||Jan 2013|
|Date of revision:||May 2016|
|Contact details of provider:|| Postal: Via Patara, 3, 47921 Rimini (RN)|
Web page: http://rcea.org
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- Pattitoni, Pierpaolo & Petracci, Barbara & Potì, Valerio & Spisni, Massimo, 2013. "Cost of entrepreneurial capital and under-diversification: A Euro-Mediterranean perspective," Research in International Business and Finance, Elsevier, vol. 27(1), pages 12-27.
- Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc. Full references (including those not matched with items on IDEAS)
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