Working Paper: NBER ID: w12223
Authors: Mark Grinblatt; Matti Keloharju
Abstract: This study analyzes the role that two psychological attributes—sensation seeking and overconfidence—play in the tendency of investors to trade stocks. Equity trading data are combined with data from an investor's tax filings, driving record, and psychological profile. We use the data to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently.
Keywords: sensation seeking; overconfidence; trading activity; behavioral finance
JEL Codes: G10; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| overconfidence (G41) | trading activity (F19) |
| sensation seeking (D91) | trading activity (F19) |
| overconfidence (G41) | larger trades (F19) |
| hubris (Y60) | larger trades (F19) |
| miscalibration (C52) | larger trades (F19) |
| sensation seeking (D91) | trading frequency (G14) |