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Openness endangers your wealth: Noise trading and the big five

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  • Kleine, Jens
  • Wagner, Niklas
  • Weller, Tim

Abstract

We examine the cross-sectional determinants of individual trading activity based on given Big Five personality traits. Our unique data set is obtained by a self-reported questionnaire with 2147 individual investors. We find that Agreeableness, Extraversion and Openness are central in explaining cross-sectional differences in trading activity. Openness is found to be a main driver of excess trading. Overconfidence as predicted by low levels of Agreeableness relates to excessive trading, while high levels of Extraversion do not. Our performance prediction conditional on investor personality is that Agreeableness saves individual investors from losing money via trading, while Openness will endanger terminal wealth.

Suggested Citation

  • Kleine, Jens & Wagner, Niklas & Weller, Tim, 2016. "Openness endangers your wealth: Noise trading and the big five," Finance Research Letters, Elsevier, vol. 16(C), pages 239-247.
    • Handle: RePEc:eee:finlet:v:16:y:2016:i:c:p:239-247
    DOI: 10.1016/j.frl.2015.12.002
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    Cited by:

    1. Choi, Paul Moon Sub & Choi, Joung Hwa & Chung, Chune Young, 2020. "Do individual traders undermine firm valuation?," Finance Research Letters, Elsevier, vol. 36(C).
    2. Thomas Noe & Nir Vulkan, 2018. "Naked aggression: Personality and portfolio manager performance," PLOS ONE, Public Library of Science, vol. 13(2), pages 1-16, February.
    3. Firth, Chris & Stewart, Neil & Antoniou, Constantinos & Leake, David, 2023. "The effects of personality and IQ on portfolio outcomes," Finance Research Letters, Elsevier, vol. 51(C).
    4. Rupali Misra & Sumita Srivastava & D. K. Banwet, 2019. "Are type B investors efficacious? Exploring role of personality in ambidextrous investment decision-making," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 46(1), pages 27-34, March.
    5. Kleine, Jens & Peschke, Thomas & Wagner, Niklas, 2021. "Collectors: Personality between consumption and investment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
    6. Chen, Shirley (Shuo) & Meng, Chong, 2024. "Conscientiousness and IPO first-day underpricing," Finance Research Letters, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Individual investors; Noise trading; Overconfidence; Personality traits; Big Five model; Agreeableness; Extraversion; Openness;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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