Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification

This paper examines the relationship between overconfidence and losses from under-diversification among Dutch investors. We find that a lack of proper portfolio diversification is positively associated with overconfidence. Part of this relationship is mediated through the lower propensity of overcon...

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Autores principales:	Stijn P. M. Broekema, Marc M. Kramer
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	portfolio diversification overconfidence financial advice financial literacy individual investors Risk in industry. Risk management HD61 Finance HG1-9999
Acceso en línea:	https://doaj.org/article/b710d6f8a8ff45dd8e59396a3241ffeb
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spelling	oai:doaj.org-article:b710d6f8a8ff45dd8e59396a3241ffeb2021-11-25T18:08:45ZOverconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification10.3390/jrfm141105531911-80741911-8066https://doaj.org/article/b710d6f8a8ff45dd8e59396a3241ffeb2021-11-01T00:00:00Zhttps://www.mdpi.com/1911-8074/14/11/553https://doaj.org/toc/1911-8066https://doaj.org/toc/1911-8074This paper examines the relationship between overconfidence and losses from under-diversification among Dutch investors. We find that a lack of proper portfolio diversification is positively associated with overconfidence. Part of this relationship is mediated through the lower propensity of overconfident individuals to hire a professional financial adviser. We use data from the 2005 wave of the DNB Dutch Household Survey that provides us with detailed portfolio data of 257 investors. We proxy for overconfidence by exploiting the difference between measured and self-assessed financial literacy, and use this proxy in a regression model (with and without mediation) to explain the difference between the actual households return and the return that could have been obtained by selecting a portfolio on the efficient frontier with equivalent risk. Our results contribute to the current discussion among policy makers on the role of financial advice and self-perceptions in household financial decision-making.Stijn P. M. BroekemaMarc M. KramerMDPI AGarticleportfolio diversificationoverconfidencefinancial advicefinancial literacyindividual investorsRisk in industry. Risk managementHD61FinanceHG1-9999ENJournal of Risk and Financial Management, Vol 14, Iss 553, p 553 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	portfolio diversification overconfidence financial advice financial literacy individual investors Risk in industry. Risk management HD61 Finance HG1-9999
spellingShingle	portfolio diversification overconfidence financial advice financial literacy individual investors Risk in industry. Risk management HD61 Finance HG1-9999 Stijn P. M. Broekema Marc M. Kramer Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification
description	This paper examines the relationship between overconfidence and losses from under-diversification among Dutch investors. We find that a lack of proper portfolio diversification is positively associated with overconfidence. Part of this relationship is mediated through the lower propensity of overconfident individuals to hire a professional financial adviser. We use data from the 2005 wave of the DNB Dutch Household Survey that provides us with detailed portfolio data of 257 investors. We proxy for overconfidence by exploiting the difference between measured and self-assessed financial literacy, and use this proxy in a regression model (with and without mediation) to explain the difference between the actual households return and the return that could have been obtained by selecting a portfolio on the efficient frontier with equivalent risk. Our results contribute to the current discussion among policy makers on the role of financial advice and self-perceptions in household financial decision-making.
format	article
author	Stijn P. M. Broekema Marc M. Kramer
author_facet	Stijn P. M. Broekema Marc M. Kramer
author_sort	Stijn P. M. Broekema
title	Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification
title_short	Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification
title_full	Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification
title_fullStr	Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification
title_full_unstemmed	Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification
title_sort	overconfidence, financial advice seeking and household portfolio under-diversification
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/b710d6f8a8ff45dd8e59396a3241ffeb
work_keys_str_mv	AT stijnpmbroekema overconfidencefinancialadviceseekingandhouseholdportfoliounderdiversification AT marcmkramer overconfidencefinancialadviceseekingandhouseholdportfoliounderdiversification
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Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification

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