Retail Trading Activity and Major Lifecycle Events: The Case of Divorce
70 Pages Posted: 4 Jun 2014 Last revised: 21 Dec 2021
Date Written: November 13, 2021
Abstract
How are trading activity and performance impacted by material events during individual
investors’ lifetimes? Using a unique dataset, we identify transfers of common stock
initiated by the major event of divorce and analyze trading patterns and performance
of divorced traders. In aggregate, divorcing individuals underperform, and part of this
underperformance is due to liquidation needs post-divorce. Cross-sectionally, however,
actively-trading divorced investors earn superior performance in the window surrounding
divorce settlement, while underperforming just prior to divorce. This result survives
a difference-in-differences analysis based on a propensity-score matched sample of nondivorced
investors. Our analysis thus suggests that the life-cycle distraction of divorce
temporarily reduces the performance of active retail traders, which improves once the
stressor is removed.
Keywords: Individual Investors, Divorce Performance, Trading Behavior
JEL Classification: G11, G41
Suggested Citation: Suggested Citation