Stock market experience and investor overconfidence: Do investors learn to be overconfident?

Gennaro Bernile, Yosef Bonaparte and Stefanos Delikouras

Journal of Banking & Finance, 2025, vol. 174, issue C

Abstract: Investor overconfidence, characterized by an excessive belief in the ability to generate superior portfolio returns, is a widely studied behavioral bias. This paper investigates the mechanisms underlying overconfidence using a Bayesian model that incorporates two features: biased prior beliefs, which imply overconfidence even before investors engage in the stock market, and biased learning, where investors overemphasize instances of outperforming the market. Empirical analysis supports the hypothesis that biased learning contributes to overconfidence, but only in the early years of investor tenure. Although overconfidence decreases with investment experience, we find that it is a widespread and persistent behavioral trait.

Keywords: Overconfidence; Biased priors; Biased learning; Portfolios; Experience (search for similar items in EconPapers)
JEL-codes: D14 D84 E21 E71 G11 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426625000512
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:174:y:2025:i:c:s0378426625000512

DOI: 10.1016/j.jbankfin.2025.107431

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().