The human investor: The profile of retail and institutional investors, and a structural equation model of investor behavior in the share market

This thesis modelled retail investor behavior in the share market. The model showed a relationship between overconfidence and preferred types of share investments. Investors who allocated more of their portfolio to cyclical shares or asset/turnarounds were more likely to sell down shares each June and buy up more shares in July. This trading activity was associated with anxiety. Barber and Odean (1999, 2001) had previously shown overconfidence led to excess trading and ultimately poorer share portfolio returns. It would thus appear that it pays to be underconfident in the share market and to invest in defensive or growth shares.