Smoking Hot Portfolios? Self-Control and Investor Decisions
44 Pages Posted: 6 Mar 2019 Last revised: 20 Jun 2019
Date Written: June 2019
Self-control failure is among the major pathologies (Baumeister et al. (1994)) affecting individual investment decisions but cannot be measured bias-free. We link the time-series of government-controlled tobacco prices to debit/credit card transaction histories to identify smoking as a proxy for self-control failure and link it to investors’ trading records. The share of smokers and their demographics are in line with German survey data and federal statistics and comparable to nonsmokers. We compare 3,553 smokers to 10,091 nonsmokers and show that self-control failure predicts trading activity. We distinguish our proxy from overconfidence, sensation seeking, attention grabbing, gambling preferences, and peer effects.
Keywords: self-control; portfolio allocation; individual investor; trading behavior
JEL Classification: G41; D14, G21; G11
Suggested Citation: Suggested Citation