Open AccessEffect of False Confidence on Asset Allocation Decisions of Households
Author(s) -
Swarn Chatterjee
Publication year - 2019
Publication title -
international journal of finance and banking studies
Language(s) - English
Resource type - Journals
ISSN - 2147-4486
DOI - 10.20525/ijfbs.v3i1.166
Subject(s) - asset allocation , asset (computer security) , national longitudinal surveys , investment (military) , economics , function (biology) , actuarial science , low confidence , demographic economics , econometrics , financial economics , psychology , social psychology , computer science , portfolio , computer security , evolutionary biology , politics , political science , law , biology
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 of trading activity in individual investment assets, and it also has a negative impact on individual wealth creation across time.