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Abstract
We examine several psychological antecedents to both short-term and long-term investment intentions, with specific focus on the Big Five personality taxonomy. The effects of specific personality traits are evaluated using structural equation modeling (SEM). Our results indicate that individuals who are more extraverted intend to engage in short-term investing, while those who are higher in neuroticism and/or risk aversion avoid this activity. Risk adverse individuals also do not engage in long-term investing. Individuals who are more open to experience are inclined to engage in long-term investing; however, openness did not predict short-term investing. The implications of these findings are discussed. © 2008 Academy of Financial Services. All rights reserved.
Keywords: Behavioral finance; intentions; investing; Big Five; personality
1. Introduction
Researchers across the past several decades have analyzed the behavior of investors and have attempted to enhance our understanding of why people manage investments in different ways. Today an extensive body of literature exists that seeks to explain how personal characteristics influence the behavior of investors. If a common theme is present in this literature, it is that personal characteristics influence investors' perception of risk and their willingness to assume risks. In turn the perception of risk determines investing behavior. However, a prevailing question left unanswered is the extent to which individuals' personal characteristics influence their intentions about investing. If individuals' investment intentions are discernable, then educators and financial counselors would want to know if those intentions are amendable.
The nature of risk and how individuals approach risk has been a developing discussion. The expected utility approach of von Neumann and Morgenstern (1947) has provided the foundation for the primary view of risk in economics and finance for many years. The main concept in their model is that the maximization of expected utility is the sole factor in making decisions. Extending their work Allais (1952) questions the exclusive use of the maximization of expected utility as a single criterion when making a risky choice, raising the issue of a person who could be faced with the trading off of expected return and the probability of reaching a given goal. In similar fashion Markowitz (1952) proposes a two-criterion approach when an investor is faced with the desire for higher returns but not wanting the...