Talk and Action: What Individual Investors Say and What They Do

• DOI: 10.1007/s10679-005-4997-z
• Publication Date: 2005-11-24T04:56:59Z
• Authors: Daniel Dorn; Gur Huberman
• Keywords: Risk Aversion

Combining survey responses and trading records of clients a German retail broker, this paper examines some the causes for apparent failure to buy hold well-diversified portfolio. The subjective investor attributes gleaned from help explain variation in actual portfolio choices. Self-reported risk aversion is single most important determinant both diversification turnover; other things equal, investors who report being more tolerant less diversified portfolios trade aggressively. Less experienced similarly tend churn poorly portfolios. effect perceived knowledge on choice clear cut; holding constant, think themselves knowledgeable about financial securities indeed better portfolios, but those than average their more.