Sensation Seeking, Overconfidence, and Trading Activity




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    • Grinblatt is with UCLA Anderson School of Management and NBER, and Keloharju is with Helsinki School of Economics and CEPR. We would like to thank the Finnish Vehicle Administration, the Finnish Armed Forces, the Finnish Central Securities Depository, and the Finnish Tax Administration for providing access to the data, as well as the Office of the Data Protection Ombudsman for recognizing the value of this project to the research community. Our appreciation also extends to Antti Lehtinen and Juan Prajogo, who provided superb research assistance, and to Narasimhan Jegadeesh, Samuli Knüpfer, Lisa Kramer, Juhani Linnainmaa, Tyler Shumway, Ivo Welch, and seminar participants at the Hong Kong University of Science and Technology, the University of Illinois, the London Business School, the London School of Economics, the University of Mannheim, the University of Michigan, Oxford University, the University of Texas, the University of Vienna, the Conference on the Theories and Practices on Securities and Financial Markets (SFM), and the Western Finance Association, who generated many insights that benefited this paper. We also thank Seppo Ikäheimo for his help in obtaining the data and Markku Kaustia, Samuli Knüpfer, Lauri Pietarinen, and Elias Rantapuska for participating in the analysis of the Finnish Central Securities Depository data. Finally, we are especially thankful for the detailed comments of an anonymous referee, an associate editor, and the editor, Campbell Harvey. Financial support from the Academy of Finland, the Foundation for Economic Education, and the Paulo Foundation is gratefully acknowledged.


This study analyzes the role that two psychological attributes—sensation seeking and overconfidence—play in the tendency of investors to trade stocks. Equity trading data from Finland are combined with data from investor tax filings, driving records, and mandatory psychological profiles. We use these data, obtained from a large population, to construct measures of overconfidence and sensation seeking tendencies. Controlling for a host of variables, including wealth, income, age, number of stocks owned, marital status, and occupation, we find that overconfident investors and those investors most prone to sensation seeking trade more frequently.