Openness Endangers Your Wealth: Noise Trading and the Big Five
20 Pages Posted: 31 Oct 2015
Date Written: October 30, 2015
Abstract
We examine the cross-sectional determinants of individual investors´ noise trading activity based on their respective Big Five personality traits. Our unique data set is obtained by a self-reported questionnaire that includes responses of 2,147 individual investors who actively engage in trading. We find that Agreeableness, Extraversion and Openness are central in explaining cross-sectional differences in trading activity. Openness is found to be a main driver of excess trading. Our results further suggest that overconfidence as predicted by low levels of Agreeableness relates to excessive trading, while high levels of Extraversion do not. Our performance prediction conditional on investor personality is that Agreeableness saves individual investors from losing money via trading, while Openness will endanger investors’ terminal wealth.
Keywords: individual investors, market participation, noise trading, overconfidence, personality traits, Big Five model, Agreeableness, Extraversion, Openness
JEL Classification: G02, G10, G12
Suggested Citation: Suggested Citation