Sensation Seeking, Overconfidence, and Trading Activity
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What they found
Finland's registries let the authors link every investor's stock trades with psychological test scores from military service and with driving records. Investors who scored high on overconfidence and those with more speeding tickets (a proxy for sensation seeking) traded significantly more often. The effects were independent of each other and survived controls for wealth, income, and age. The paper provides unusually direct evidence that personality traits, not just information, drive trading activity.
What you can use
- People who trade a lot do so partly for the thrill; sensation seeking is measurable in trading frequency.
- If you notice you trade for excitement, that urge is a documented driver of overtrading and its costs.
- Overconfidence and thrill-seeking are separate traits and each independently increases turnover.
Caveats
Finnish male investors with military test records; the link from personality to returns is indirect. Trading frequency, not profitability, is the outcome studied.
Tags: retail, sensation-seeking, overconfidence, trading-frequency
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.