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Narrow framing and under-diversification: Empirical evidence from Chinese households

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  • Xie, Yuxin
  • Tang, Ruohua
  • Pantelous, Athanasios A.
  • Lu, Xiaomeng

Abstract

Using unique survey data from the China Household Finance Survey, we estimate the extent of “narrow framing”, which is a widely documented behavioral bias, among Chinese households, using their portfolio choices. Conditional on stock market participation, we find that most Chinese households exhibit significant narrow framing. Based on the obtained estimates, we show that narrow framing positively predicts the extent of under-diversification. Most importantly, we argue that narrow framing is an irreplaceable of understanding households' portfolio choices, even after considering measurement error and a wide set of indicators of diversification.

Suggested Citation

  • Xie, Yuxin & Tang, Ruohua & Pantelous, Athanasios A. & Lu, Xiaomeng, 2024. "Narrow framing and under-diversification: Empirical evidence from Chinese households," China Economic Review, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:chieco:v:83:y:2024:i:c:s1043951x23001803
    DOI: 10.1016/j.chieco.2023.102095
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    1. Guo, Fusen & Li, Feng & Lu, Xiaomeng, 2024. "Does financial advisors improve portfolio efficiency for individual investors? Evidence from large-scale microdata," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 400-412.

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    More about this item

    Keywords

    Survey data; Narrow framing; Chinese households; Portfolio diversification; Behavioral economics;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G5 - Financial Economics - - Household Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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