How do decision frames influence the stock investment choices of individual investors?

Alok Kumar, Seongyeon Lim Sonya

Research output: Contribution to journalArticle

61 Scopus citations

Abstract

This study examines whether the framing mode (narrow versus broad) influences the stock investment decisions of individual investors. Motivated by the experimental evidence, which suggests that separate decisions are more likely to be narrowly framed than simultaneous decisions, we propose trade clustering as a proxy for narrow framing. Using this framing proxy, we show that investors who execute more clustered trades exhibit weaker disposition effects and hold better-diversified portfolios. We also find that the degree of trade clustering is related to investors' stock preferences and portfolio returns. Collectively, the evidence indicates that the choice of decision frames is likely to be an important determinant of investment decisions.

Original languageEnglish (US)
Pages (from-to)1052-1064
Number of pages13
JournalManagement science
Volume54
Issue number6
DOIs
StatePublished - Jun 1 2008
Externally publishedYes

Keywords

  • Disposition effect
  • Narrow framing
  • Portfolio diversification
  • Prospect theory
  • Trade clustering

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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