Individual Investors' Trading Activity and Major Lifecycle Events: The Case of Divorce
41 Pages Posted: 4 Jun 2014 Last revised: 15 Jun 2020
Date Written: January 24, 2020
How are financial market participation and trading impacted by material events during individual investors' lifetimes? Using proprietary data, we identify transfers of common stock initiated by marriage breakdown and analyze the trading decisions and share trading performance of the divorced partners. In aggregate, while divorcing couples underperform their matched peers, active traders outperform less actively trading divorcees after settlement is reached. Our analysis thus suggests that the life-cycle distraction of divorce temporarily reduces the performance of active individual investors, which improves once the stressor is removed. Further, smaller portfolios of the full sample of divorcees suffer more underperformance which emanates from sales at unfavorable prices, thus pointing to liquidity-motivated fire sales of stocks post-divorce.
Keywords: Decision Making, Divorce, Individual Investors, Performance, Trading Behavior
JEL Classification: G11, G12, G30
Suggested Citation: Suggested Citation