Smoking Hot Portfolios? Self-Control and Investor Decisions

48 Pages Posted: 6 Mar 2019

See all articles by Charline Uhr

Charline Uhr

Goethe University Frankfurt

Steffen Meyer

University of Southern Denmark - Department of Business and Economics; Danish Finance Institute

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE

Date Written: March 2019

Abstract

Self-control failure is among the major pathologies (Baumeister et al. (1994)) affecting individual investment decisions which has hardly been measurable in empirical research. We use cigarette addiction identified from checking account transactions to proxy for low self-control and compare over 5,000 smokers to 14,000 nonsmokers. Smokers self-directing their investment trade more frequently, exhibit more biases and achieve lower portfolio returns. We also find that smokers, some of which might be aware of their limited levels of self-control, exhibit a higher propensity than nonsmokers to delegate decision making to professional advisors and fund managers. We document that such precommitments work successfully.

Keywords: self-control; portfolio allocation; individual investor; trading behavior

JEL Classification: G41; D14, G21; G11

Suggested Citation

Uhr, Charline and Meyer, Steffen and Hackethal, Andreas, Smoking Hot Portfolios? Self-Control and Investor Decisions (March 2019). SAFE Working Paper No. 245 (2019). Available at SSRN: https://ssrn.com/abstract=3347625 or http://dx.doi.org/10.2139/ssrn.3347625

Charline Uhr (Contact Author)

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz
Frankfurt am Main, 60323
Germany

Steffen Meyer

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

Danish Finance Institute ( email )

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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