Personality Traits and Investment Styles

Thorsten Hens and Mei Ding-Hirschfeld
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Thorsten Hens: University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute
Mei Ding-Hirschfeld: University of Zurich

No 22-16, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We show that preferred investment styles can be determined by the big five personality traits. Using this result, we build a tool that recommends investment styles. The resulting recommendations are significantly higher rated than random recommendations. We collected detailed personality traits data and preferred investment styles of 2459 participants. They are selected from the German population. Based on this data, we receive positive regression results, suggesting the significant relationship between personality traits and styles. Then we established a personality-based style profiler based on a least-distance algorithm. We tested its out-of-sample performance. The results of AB testing show that the style profiler provides significantly better fitting style recommendations than a random recommendation. Our results suggest that further research on wealth management could benefit from including the personality of individual investors as a crucial factor, contributing to more satisfying and consistent recommendations.

Pages: 28 pages
Date: 2022-02
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2216

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