Study Suggests Investment Behavior is Inherited

November 30, 2009 ( - Investor behavior is largely determined by nature rather than nurture, according to a new study by finance professors at Claremont McKenna College and the University of Washington.

According to a press release, by studying twins and their financial behavior, researchers found that genetics account for one-third, on average, and as much as 45% of investor behavior. Other factors previously studied, such as age, gender, education, wealth and home ownership, when combined explain only 5% to 10% of investor behavior, the research suggests.  

“We found that genetics explains differences in investor behavior much more than everything else that people have proposed,” said Stephan Siegel, assistant professor of finance at the University of Washington’s Foster School of Business, in the announcement.

The researchers cross-referenced nearly 38,000 twins in the Swedish Twin Registry with comprehensive personal financial data — stocks, bonds, real estate, cash — collected by the Swedish government. To separate genetics from environmental drivers of financial behavior, the researchers compared each twin pair’s stock market participation, asset allocation, and portfolio risk.

In all three measures, the data showed a significantly higher correlation between identical twins than non-identical twins. Correlation of a random sample of the population is close to zero. The researchers said this stark difference between the identical and non-identical twins relative to the general population is strong evidence that investing behavior is, in significant part, hereditary.

In addition, the researchers considered 716 twins from the Swedish registry who were raised apart and found their average correlation in investing behavior to be virtually identical to those raised together, adding more evidence that genetics drives investor behavior.

The study, “Nature or Nurture: What Determines Investor Behavior?” can be downloaded from here