Naïve *Buying* Diversification and Narrow Framing by Individual Investors
We provide the first tests to distinguish whether individual investors equally balance their overall portfolios (naïve portfolio diversification—NPD) or engage in naïve buying diversification (NBD)—equally balancing values in same-day purchases of multiple assets. We find NBD in purchases of multiple stocks, and in mixed purchases of individual stocks and funds. In contrast, there is little evidence of NPD. So investors seem to narrowly frame their buy-day decision. Simulation analysis suggests that NBD substantially reduces investor welfare. These findings suggest that behavioral finance theory should incorporate transactional as well as portfolio framing.
Published Versions
JOHN GATHERGOOD & DAVID HIRSHLEIFER & DAVID LEAKE & HIROAKI SAKAGUCHI & NEIL STEWART, 2023. "Naïve Diversification and Narrow Framing by Individual Investors," The Journal of Finance, vol 78(3), pages 1705-1741. citation courtesy of 
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