Studying the Effect of Investors’ Personality on their Business Behavior and Investment Performance: Evidences of Tehran Stock Exchange

Abstract

Objective: To date, the main source of inspiration for behavioral finance scholars has been cognitive psychology. This study builds on this tradition by merging in insights from yet another psychological sub-discipline: personality psychology. We argue that a human being’s personality is a key determinant of his/her behavior and performance. We illustrate, for a subset of five personality traits (locus of control, maximizing tendency, self-monitoring, sensation seeking and type-A/B behavior), how this logic can be applied in the context of the study of traders’ behavior and performance. Methods: we investigated the behavioral and functional components of 380 individual investors in the stock market using survey method and collecting the questionnaire. Results: The results suggested that Investors with an external locus of control, type-A behavior and high maximizing tendency are busy working on trading more frequently. Investors with an external locus of control, high sensation seeking and high self-monitoring have a less diverse portfolio. Finally, the frequency of transactions is related to better performance, while portfolio diversification does not affect the performance of the individuals. Conclusion: Different personality traits affect distinct components of trading behavior, and so trading performance.

Keywords

• personality
• investor behavior
• investor performance
• portfolio diversification
• trading frequency