IQ, trading behavior, and performance

Grinblatt, Mark; Keloharju, Matti; Linnainmaa, Juhani T.

doi:10.1016/j.jfineco.2011.05.016

Cited by 362 publications

(133 citation statements)

References 59 publications

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“…It is noteworthy that the results for guardians are similar to the performance of the highest IQ stanine in Finland based on trades made 1 day earlier. For that group of investors, Grinblatt, Keloharju, and Linnainma () report a mean outperformance of 7.5 bp for buys, and no significant outperformance for sells. This evidence suggests that guardians are more likely to make uninformed liquidity trades on the sell side through their own accounts than they are through the accounts of children.…”

Section: Analysis Of All Tradesmentioning

confidence: 99%

“…This information is important to investigate whether different age groups tend to focus on different investment styles or firms with certain characteristics, which could lead to superior performance. Our choice of control variables is based on Grinblatt, Keloharju, and Linnainma (), who analyze the performance of Finnish individuals based on IQ scores. Similar to these authors, we report the mean adjusted ranks of the firm's β ( BETA ), market‐to‐book ratio ( M/B ), and firm size ( Size ), as well as four variables that summarize the stock's returns over the past year excluding the last month ( RYear ), the past month excluding the last week ( RMonth ), the past week excluding the last day ( RWeek ), and the past day ( RDay ).…”

Section: Institutional Background Data and Sample Characteristicsmentioning

confidence: 99%

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Informed Trading through the Accounts of Children

Berkman¹,

Koch²,

Westerholm

2014

The Journal of Finance

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This study shows that the guardians behind underaged accounts are successful at picking stocks. Moreover, they tend to channel their best trades through the accounts of children, especially when they trade just before major earnings announcements, large price changes, and takeover announcements. Building on these results, we argue that the proportion of total trading activity through underaged accounts (labeled BABYPIN) should serve as an effective proxy for the probability of information trading in a stock. Consistent with this claim, we show that investors demand a higher return for holding stocks with a greater likelihood of private information, proxied by BABYPIN.

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Section: Analysis Of All Tradesmentioning

confidence: 99%

Section: Institutional Background Data and Sample Characteristicsmentioning

confidence: 99%

Informed Trading through the Accounts of Children

Berkman¹,

Koch²,

Westerholm

2014

The Journal of Finance

View full text Add to dashboard Cite

show abstract

“…4.1), several contributions lacking an observable measure of financial capabilities exploit this evidence and use respondents' demographics in order to capture their financial literacy. Corresponding proxies for financial sophistication used in the literature include (disposable) income and wealth (Dhar and Zhu 2006;Vissing-Jorgensen 2003;Calvet et al 2007Calvet et al , 2009) as well as age (Calvet et al 2007(Calvet et al , 2009Georgarakos and Pasini 2011), educational attainment (Christiansen et al 2008;Calvet et al 2007Calvet et al , 2009), professional status (Calvet et al 2009), and even IQ (Grinblatt et al 2011(Grinblatt et al , 2012. Likewise, both Chalmers and Reuter (2012) and Hackethal et al (2012) use subsets of these demographics to proxy for financial literacy in their analyses.…”

Section: Socio-demographic Proxiesmentioning

confidence: 99%

Financial literacy, financial advice, and financial behavior

2017

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In this survey, we review the voluminous body of literature on the measurement and the determinants of financial literacy. Wherever possible, we supplement existing findings with recent descriptive evidence of German households' financial literacy levels based on the novel Panel on Household Finances dataset, a large-scale survey administered by the Deutsche Bundesbank and representative of the financial situation of households in Germany. Prior research not only documents generally low levels of financial literacy but also finds large heterogeneity in financial literacy across the population, suggesting that economically vulnerable groups are placed at further disadvantage by their lack of financial knowledge. In addition, we assess the literature evaluating financial education as a means to improve financial literacy and financial behavior. Our survey suggests that the evidence with respect to the effectiveness of the programs is rather disappointing. We also review the role of individuals' financial literacy for the use of professional financial advice and assess whether expert intervention can serve as a substitute to financial literacy. We conclude by discussing several directions for future research.

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“…Barber and Odean 2000), the effect of experience or IQ on trading performance (e.g. Grinblatt et al 2012) as well as the disposition effect (e.g. Odean 1998).…”

Section: Decision Processes In Trading Environmentsmentioning

confidence: 99%

The Impact of customizable Market Interfaces on Trading Performance

2014

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One reason for market failure is the inherent complexity that excludes non-sophisticated users. Market complexity can be reduced by adapting the market rules or by simplifying the user interface. Just recently researchers started to address this topic and identified the need to merge market and interface design. Thus far it remains unclear how to design usercentric market interfaces. In a prediction market for economic variables, traders can customize their trading interface according to their informational needs. Surprisingly, we show that on average an increase in information reduces trading performance. An explanation for this effect might lie in cognitive theory. Displaying more information increases the participants' cognitive load and hence might reduce trading performance. We are able to distinguish between trading behaviour and performance and thereby provide insight into the interplay between information and decision making. Finally, we also track the influence of individual information elements and identify those that improve or decrease trading performance.

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IQ, trading behavior, and performance

Cited by 362 publications

References 59 publications

Informed Trading through the Accounts of Children

Informed Trading through the Accounts of Children

Financial literacy, financial advice, and financial behavior

The Impact of customizable Market Interfaces on Trading Performance

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