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

TY - JOUR

T1 - Smoking hot portfolios? Trading behavior, investment biases, and self-control failure

AU - Uhr, Charline

AU - Meyer, Steffen

AU - Hackethal, Andreas

PY - 2021/9

Y1 - 2021/9

N2 - 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.

AB - 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.

KW - Individual investor

KW - Investment biases

KW - Overtrading

KW - Self-control

KW - Trading behavior

UR - http://www.scopus.com/inward/record.url?scp=85107850142&partnerID=8YFLogxK

U2 - 10.1016/j.jempfin.2021.05.006

DO - 10.1016/j.jempfin.2021.05.006

M3 - Journal article

AN - SCOPUS:85107850142

SN - 0927-5398

VL - 63

SP - 73

EP - 95

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

ER -