The Journal of Finance

Sensation Seeking, Overconfidence, and Trading Activity

Published: 03/13/2009   |   DOI: 10.1111/j.1540-6261.2009.01443.x

MARK GRINBLATT, MATTI KELOHARJU

This study analyzes the role that two psychological attributes—sensation seeking and overconfidence—play in the tendency of investors to trade stocks. Equity trading data from Finland are combined with data from investor tax filings, driving records, and mandatory psychological profiles. We use these data, obtained from a large population, to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently.

What Makes Investors Trade?

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00338

Mark Grinblatt, Matti Keloharju

A unique data set allows us to monitor the buys, sells, and holds of individuals and institutions in the Finnish stock market on a daily basis. With this data set, we employ Logit regressions to identify the determinants of buying and selling activity over a two‐year period. We find evidence that investors are reluctant to realize losses, that they engage in tax‐loss selling activity, and that past returns and historical price patterns, such as being at a monthly high or low, affect trading. There also is modest evidence that life‐cycle trading plays a role in the pattern of buys and sells.

How Distance, Language, and Culture Influence Stockholdings and Trades

Published: 12/17/2002   |   DOI: 10.1111/0022-1082.00355

Mark Grinblatt, Matti Keloharju

This paper documents that investors are more likely to hold, buy, and sell the stocks of Finnish firms that are located close to the investor, that communicate in the investor's native tongue, and that have chief executives of the same cultural background. The influence of distance, language, and culture is less prominent among the most investment‐savvy institutions than among both households and less savvy institutions. Regression analysis indicates that the marginal effect of distance is less for firms that are more nationally known, for distances that exceed 100 kilometers, and for investors with more diversified portfolios.

IQ and Stock Market Participation

Published: 11/14/2011   |   DOI: 10.1111/j.1540-6261.2011.01701.x

MARK GRINBLATT, MATTI KELOHARJU, JUHANI LINNAINMAA

Stock market participation is monotonically related to IQ, controlling for wealth, income, age, and other demographic and occupational information. The high correlation between IQ and participation exists even among the affluent. Supplemental data from siblings, studied with an instrumental variables approach and regressions that control for family effects, demonstrate that IQ's influence on participation extends to females and does not arise from omitted familial and nonfamilial variables. High‐IQ investors are more likely to hold mutual funds and larger numbers of stocks, experience lower risk, and earn higher Sharpe ratios. We discuss implications for policy and finance research.

Return Seasonalities

Published: 02/22/2016   |   DOI: 10.1111/jofi.12398

MATTI KELOHARJU, JUHANI T. LINNAINMAA, PETER NYBERG

A strategy that selects stocks based on their historical same‐calendar‐month returns earns an average return of 13% per year. We document similar return seasonalities in anomalies, commodities, and international stock market indices, as well as at the daily frequency. The seasonalities overwhelm unconditional differences in expected returns. The correlations between different seasonality strategies are modest, suggesting that they emanate from different systematic factors. Our results suggest that seasonalities are not a distinct class of anomalies that requires an explanation of its own, but rather that they are intertwined with other return anomalies through shared systematic factors.

Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions

Published: 08/12/2005   |   DOI: 10.1111/j.1540-6261.2005.00782.x

MATTI KELOHARJU, KJELL G. NYBORG, KRISTIAN RYDQVIST

We contribute to the debate on the optimal design of multiunit auctions by developing and testing robust implications of the leading theory of uniform price auctions on the bid distributions submitted by individual bidders. The theory, which emphasizes market power, has little support in a data set of Finnish Treasury auctions. A reason may be that the Treasury acts strategically by determining supply after observing bids, apparently treating the auctions as a repeated game between itself and primary dealers. Bidder behavior and underpricing react to the volatility of bond returns in a way that suggests bidders adjust for the winner's curse.