Do investor’s Big Five personality traits influence the association between information acquisition and stock trading behavior?

Abstract

Purpose The purpose of this paper is to investigate the impact of the frequency of information acquisition on the frequency of stock trading. The authors also examined if the Big Five personality traits of investor influence the association between information acquisition and stock trading behavior. Design/methodology/approach The authors adopted NEO Five-Factor Inventory (Costa and McCrae, 1989) inventory to measure the Big Five personality traits of investors and examined the data collected from 541 individual investors of the Chinese stock market. To overcome the potential endogeneity bias, the authors followed two-stage least square method for estimating endogenous covariate by employing instrumental variable analysis. The authors performed probit regression to evaluate the moderating influence of investor personality traits on the association between information acquisition and stock trading behavior. The authors also performed several other tests to check the robustness of the key findings. Findings This research confirmed the previous findings that the more frequently investors acquire information, the more often they trade in stocks. Moreover, the authors added to the existing literature by providing empirical evidence that the Big Five personality traits moderate the relationship of information acquisition with stock trading behavior. Information acquisition tends to increase stock trading frequency in investors with conscientiousness, extraversion and agreeableness traits. On the other hand, it also has the tendency to decrease the intensity of stock trading in investors with openness and neuroticism traits. Research limitations/implications The theoretical model in this study seeks to explain that the psychological factor, namely, investor personality, influences the way an investor interprets signals from information which in turn influences the investor decision to trade in securities. This research suggests that psychological characteristics of investors can be of relevance for policy makers in their attempts to improve their business in the financial services industry. Originality/value This study combines both information search literature and behavioral finance literature to investigate whether or not the information acquisition that relates to investors’ asset allocation decisions is influenced by investor personality. The study offers new theoretical insights into investors’ behavior due to the characteristics of the Chinese stock market which are uniquely different from other stock markets in the world. No previous study has been conducted so far in the Chinese stock market to explore variations in the impact of investors’ information acquisition on their stock trading by the Big Five personality and this paper strives to fill this research gap.