Working Paper: NBER ID: w31041
Authors: Zhengyang Jiang; Cameron Peng; Hongjun Yan
Abstract: We survey thousands of affluent American investors to examine the relationship between personalities and investment decisions. The Big Five personality traits correlate with investors' beliefs about the stock market and economy, risk preferences, and social interaction tendencies. Two personality traits, Neuroticism and Openness, stand out in their explanatory power for equity investments. Investors with high Neuroticism and those with low Openness tend to allocate less investment to equities. We examine the underlying mechanisms and find evidence for both standard channels of preferences and beliefs and other nonstandard channels. We show consistent out-of-sample evidence in representative panels of Australian and German households.
Keywords: Personality Traits; Investment Decisions; Equity Investments; Risk Preferences
JEL Codes: D91; G11; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high neuroticism (D91) | lower equity investments (G12) |
| high neuroticism (D91) | pessimistic beliefs about stock returns (G17) |
| pessimistic beliefs about stock returns (G17) | lower equity investments (G12) |
| low openness (F40) | higher risk aversion (D81) |
| higher risk aversion (D81) | lower equity investments (G12) |
| high neuroticism (D91) | more conformity in investment choices (G11) |
| high extraversion (Z13) | more conformity in investment choices (G11) |