Smoking hot portfolios? Trading behavior, investment biases, and self-control failure

Charline Uhr, Steffen Meyer and Andreas Hackethal

Journal of Empirical Finance, 2021, vol. 63, issue C, 73-95

Abstract: Self-control is a personality trait that explains undersaving and nonparticipation decisions. We show that self-control failure also affects trading behavior among individuals on capital markets. We use smoking as the most socially accepted example of self-control failure among 13,644 German brokerage clients and compare the trading behavior of 3,553 smokers and 10,091 nonsmokers. Smokers are associated with a higher portfolio turnover unexplained by financial sophistication or wealth effects. Self-control failure also exacerbates overconfidence, social contagion, sensation seeking, and attention grabbing. Overall, self-control failure is costly because it increases the gap between gross and net returns of smokers relative to nonsmokers.

Keywords: Self-control; Individual investor; Trading behavior; Overtrading; Investment biases (search for similar items in EconPapers)
JEL-codes: D14 G11 G21 G41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:63:y:2021:i:c:p:73-95

DOI: 10.1016/j.jempfin.2021.05.006

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