Building on the work of psychologists and social scientists in other areas, researchers are investigating how to apply behavioral traits in analyzing how people invest their money.
Today's piece in the Business section of the New York Times discusses, for example, why women tend to be better investors over time then men.
How Men’s Overconfidence Hurts Them as Investors
By JEFF SOMMER
MEN and women invest differently, a growing body of research has found. And in at least one important respect, women may be better at it.
The latest data comes from Vanguard, the mutual fund company. Among 2.7 million people with I.R.A.’s at the company, it found that during the financial crisis of 2008 and 2009, men were much more likely than women to sell their shares at stock market lows. Those sales presumably meant big losses — and missing the start of the market rally that began a year ago.
Male investors, as a group, appear to be overconfident, said John Ameriks, head of Vanguard Investment Counseling and Research and a co-author of the study. “There’s been a lot of academic research suggesting that men think they know what they’re doing, even when they really don’t know what they’re doing,” he said.
Women, on the other hand, appear more likely to acknowledge when they don’t know something — like the direction of the stock market or of the price of a stock or a bond.
Staying the course and minimizing costs — selling high and buying low, if you trade at all — are the classic characteristics of good long-term, buy-and-hold investors. But during the financial crisis, the Vanguard study showed, men were more likely than women to trade — and to do so at the wrong times.
That fits the patterns found in path-breaking research by Brad M. Barber of the University of California, Davis, and Terrance Odean, now at the University of California, Berkeley. In a 2001 study titled, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” they analyzed the investing behavior of more than 35,000 households from a large discount brokerage firm. All else being equal, men traded stocks nearly 50 percent more often than women. This added trading drove up the men’s costs and lowered their returns.