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IQ, trading behavior, and performance

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  • Grinblatt, Mark
  • Keloharju, Matti
  • Linnainmaa, Juhani T.

Abstract

We analyze whether IQ influences trading behavior, performance, and transaction costs. The analysis combines equity return, trade, and limit order book data with two decades of scores from an intelligence (IQ) test administered to nearly every Finnish male of draft age. Controlling for a variety of factors, we find that high-IQ investors are less subject to the disposition effect, more aggressive about tax-loss trading, and more likely to supply liquidity when stocks experience a one-month high. High-IQ investors also exhibit superior market timing, stock-picking skill, and trade execution.

Suggested Citation

  • Grinblatt, Mark & Keloharju, Matti & Linnainmaa, Juhani T., 2012. "IQ, trading behavior, and performance," Journal of Financial Economics, Elsevier, vol. 104(2), pages 339-362.
    • Handle: RePEc:eee:jfinec:v:104:y:2012:i:2:p:339-362
    DOI: 10.1016/j.jfineco.2011.05.016
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    Keywords

    Intelligence; Household finance; Trading performance;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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