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Sensation Seeking, Overconfidence, and Trading Activity

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Author Info
MARK GRINBLATT
MATTI KELOHARJU

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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 from Finland are combined with data from investor tax filings, driving records, and mandatory psychological profiles. We use these data, obtained from a large population, 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. Copyright (c) 2009 the American Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2009.01443.x
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Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 64 (2009)
Issue (Month): 2 (04)
Pages: 549-578
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Handle: RePEc:bla:jfinan:v:64:y:2009:i:2:p:549-578

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mark Grinblatt, 2001. "What Makes Investors Trade?," Journal of Finance, American Finance Association, vol. 56(2), pages 589-616, 04. [Downloadable!] (restricted)
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  2. Grinblatt, Mark & Keloharju, Matti, 2000. "The investment behavior and performance of various investor types: a study of Finland's unique data set," Journal of Financial Economics, Elsevier, vol. 55(1), pages 43-67, January. [Downloadable!] (restricted)
  3. Grinblatt, Mark & Han, Bing, 2005. "Prospect theory, mental accounting, and momentum," Journal of Financial Economics, Elsevier, vol. 78(2), pages 311-339, November. [Downloadable!] (restricted)
  4. Gervais, Simon & Odean, Terrance, 2001. "Learning to be Overconfident," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 14(1), pages 1-27.
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  5. Laurence Weiss, 1979. "Information Aggregation and Policy," Cowles Foundation Discussion Papers 528, Cowles Foundation, Yale University. [Downloadable!]
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  6. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February. [Downloadable!] (restricted)
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  7. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04. [Downloadable!] (restricted)
  8. Biais, Bruno & Hilton, Denis & Mazurier, Karine & Pouget, Sébastien, 2004. "Judgmental Overconfidence, Self-Monitoring and Trading Performance in an Experimental Financial Market," IDEI Working Papers 259, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  9. Julie Agnew & Pierluigi Balduzzi & Annika Sundén, 2003. "Portfolio Choice and Trading in a Large 401(k) Plan," American Economic Review, American Economic Association, vol. 93(1), pages 193-215, March. [Downloadable!]
  10. John R. Graham & Campbell R. Harvey & Hai Huang, 2005. "Investor Competence, Trading Frequency, and Home Bias," NBER Working Papers 11426, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  12. Brad M. Barber & Terrance Odean, 2002. "Online Investors: Do the Slow Die First?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(2), pages 455-488, March.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gloede, Oliver & Menkhoff, Lukas, 2009. "Financial professionals' overconfidence: Is it experience, job, or attitude?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-428, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  2. Kuhnen, Camelia & Knutson, Brian, 2008. "The Influence of Affect on Beliefs, Preferences and Financial Decisions," MPRA Paper 10410, University Library of Munich, Germany. [Downloadable!]
  3. Nicholas C. Barberis & Wei Xiong, 2008. "Realization Utility," NBER Working Papers 14440, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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