The Role of Personality Traits in Investment Decisions of Young Adults

Abstract

This paper studies the relationship between the Big five personality traits, socio-economic characteristics and the investment choices of young adults. The data used in the analysis was obtained from a survey which aimed to identify individual’s personality traits, risk aversion and preferred investment strategy. To estimate the effect of personality traits, risk aversion on individual’s investment strategy we used a probit model. The results show that personality traits and certain socio-demographic variables influence individuals’ choice of preferred investment strategy. We find that more extroverted people were identified as more likely to diversify their investments, however, people more open to new experiences came out as more conservative in their investments. Considering individual socio-economic characteristics, men chose a conservative investment strategy with a lower probability than women. Also, marital and employment status were found to statistically significantly affect preference towards a conservative investment strategy.