Effect of False Confidence on Asset Allocation Decisions of Households

Swarnankur Chatterjee

International Journal of Finance & Banking Studies, 2014, vol. 3, issue 1, 01-11

Abstract: This paper investigates whether false confidence, as characterized by a high level of personal mastery and a low level of intelligence (IQ), results in frequent investor trading and subsequent investor wealth erosion across time. Using the National Longitudinal Survey (NLSY79), change in wealth and asset allocation across time is modeled as a function of various behavioral, socio-economic and demographic variables drawn from prior literature. Findings of this research reveal that false confidence is indeed a predictor oftrading activity in individual investment assets, and it also has a negative impact on individual wealth creation across time.

Keywords: Behavioral Economics; Cognitive Mistakes; Financial Decision; Investments; Portfolio allocation decisions (search for similar items in EconPapers)
Date: 2014
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