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Smoking hot portfolios? Trading behavior, investment biases, and self-control failure

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  • Uhr, Charline
  • Meyer, Steffen
  • Hackethal, Andreas

Abstract

Self-control is a personality trait that explains undersaving and nonparticipation decisions. We show that self-control failure also affects trading behavior among individuals on capital markets. We use smoking as the most socially accepted example of self-control failure among 13,644 German brokerage clients and compare the trading behavior of 3,553 smokers and 10,091 nonsmokers. Smokers are associated with a higher portfolio turnover unexplained by financial sophistication or wealth effects. Self-control failure also exacerbates overconfidence, social contagion, sensation seeking, and attention grabbing. Overall, self-control failure is costly because it increases the gap between gross and net returns of smokers relative to nonsmokers.

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  • Uhr, Charline & Meyer, Steffen & Hackethal, Andreas, 2021. "Smoking hot portfolios? Trading behavior, investment biases, and self-control failure," Journal of Empirical Finance, Elsevier, vol. 63(C), pages 73-95.
    • Handle: RePEc:eee:empfin:v:63:y:2021:i:c:p:73-95
    DOI: 10.1016/j.jempfin.2021.05.006
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    More about this item

    Keywords

    Self-control; Individual investor; Trading behavior; Overtrading; Investment biases;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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