Impact of Overconfidence on Investment Behavior

Very Easy Active Equity Investing Behavioral Considerations

In the context of active equity investing, understanding behavioral considerations is crucial for portfolio managers. One common behavioral bias that can influence investment decisions is overconfidence. This bias may lead investors to overestimate their ability to predict stock price movements and underestimate risks associated with their investment choices.

Which of the following statements best describes the impact of overconfidence on investment behavior?

Overconfident investors are more likely to diversify their portfolios.

Overconfident investors tend to trade less frequently than their less confident counterparts.

Overconfident investors often take on excessive risk due to their inflated sense of accuracy.

Hint

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