How Personalities Shape Investment Decisions

The gregarious and sentimental investors tilt toward value, whereas impulsive investors and thrill-seekers prefer growth stocks.


Personality traits like how outgoing or adventurous an investor is may be a determining factor behind portfolio choices, according to new research from the University of Oulu in Finland.

The authors found tendencies toward small-cap or large-cap stocks, as well as tilts toward growth or value, related to personal characteristics such as impulsiveness and sentimentality.

“Despite knowing that small-capitalization and value stocks outperform over time, investors may be drawn to large-capitalization growth stocks because the large-capitalization growth stocks appeal to inherent investor preferences,” wrote Andrew Conlin and Jouko Miettunen wrote.

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For the study, Conlin and Miettunen determined personality traits using the Temperament and Character Inventory, a personality test measuring persistence, harm avoidance, reward dependence, and novelty seeking. They focused specifically on the latter two traits, which broke down further into sub-characteristics such as a person’s disregard for rules or willingness to make decisions based on hunches.

They then compared the personality test results of 710 investors with their personal stock holdings, using market-to-book ratio as a measure for value and market capitalization for size.

Investors who favored large-cap growth stocks tended to be thrill-seekers with a willingness to spend money. Meanwhile, individuals who were shown to be impulsive and “do things their own way without much regard for routines or rules” preferred a small-cap growth strategy.

The most sociable investors tended to hold small-cap stocks tilted toward value — a phenomenon Conlin and Miettunen attributed to information advantages gained through socialization with other market participants. Individuals who tested highly for sentimentality — one’s tendency to be affected by emotional stimuli — also preferred small-cap value stocks.

“It is likely easier for a sentimental person to form an emotional connection to smaller capitalization value firms and to hold these firms in his portfolio,” the authors explained.

The relationship between personality traits and equities strategies held true even when accounting for factors such as risk aversion, wealth, gender, and education.

“Assuming that institutional money managers’ investment decisions are influenced by their personality traits,” the authors concluded, “personality traits may have a larger role to play in overall asset pricing than previously thought.”