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IQ, Trading Behavior, and Performance

65 Pages Posted: 20 Mar 2009 Last revised: 17 Nov 2011

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area; Yale University - International Center for Finance; National Bureau of Economic Research (NBER)

Matti Keloharju

Aalto University - School of Business; Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Juhani T. Linnainmaa

USC Marshall School of Business; National Bureau of Economic Research (NBER)

Date Written: June 9, 2011

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 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.

Keywords: Intelligence, household finance, trading performance

JEL Classification: G11, G14

Suggested Citation

Grinblatt, Mark and Keloharju, Matti and Linnainmaa, Juhani T., IQ, Trading Behavior, and Performance (June 9, 2011). Journal of Financial Economics, Forthcoming; CRSP Working Paper; AFA 2010 Atlanta Meetings Paper; EFA 2010 Frankfurt Meetings Paper; Chicago Booth Research Paper No. 09-33. Available at SSRN: https://ssrn.com/abstract=1364014 or http://dx.doi.org/10.2139/ssrn.1364014

Mark Grinblatt

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1098 (Phone)
310-206-5455 (Fax)

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Matti Keloharju (Contact Author)

Aalto University - School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland
+358 40 353 8043 (Phone)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Juhani T. Linnainmaa

USC Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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