Investing, personality and social preferences : essays on the psycho-graphics of US individual investors

Abstract

In three essays, I investigate whether investors’ social preferences and personality traits can help explain individual investors' investment decisions. The first essay investigates whether investors' social preferences are associated with three measures of engagement in socially responsible investments (SRI): (1) 'interest' in investing, (2) the likelihood of having invested, and (3) the share of the portfolio invested. The results suggest that investors' social preferences are positively associated with the reported 'interest' investors have in investing in SRI, and the likelihood that investors have invested in SRI in the past. I do not find evidence that investors' social preferences are associated with the share of their portfolio invested in SRI. This pattern is consistent with a 'warm glow' interpretation of investor motivation to hold SRI. The second essay explores whether investors' personality traits - linked to prosocial behaviour - are associated with two measures of engagement in SRI: (1) 'interest' in investing, and (2) the likelihood of having invested. The findings suggest that prosocial personality traits are related to both the 'interest' investors' report in investing in SRI, and the likelihood that investors' have invested in SRI in the past. What is more, investors' aversive personality traits are also associated with the likelihood that investors' have invested in SRI in the past. Together, these results suggest that both 'altruistic' and 'selfish' motivations drive investors' engagement in SRI. The third essay investigates whether investors' personality traits - linked to risk taking - are associated with four measures of financial risk taking. The evidence I uncover in the third essay paints an unclear picture, on the whole the evidence suggests that investors' personality traits are not very important characteristics when it comes to financial risk taking.