New Study Finds Investment Strategy is in the Genes

Claremont McKenna College and University of Washington collaboration says whether you're a cautious investor or a high roller, heredity's at play

Nov 30, 2009, 11:00 ET from University of Washington and Claremont McKenna College

SEATTLE, Nov. 30 /PRNewswire/ -- 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. By studying twins and their financial behavior, researchers found that genetics account for one-third, on average, and as much as 45 percent of investor behavior. Other factors previously studied, such as age, gender, education, wealth and home ownership, when combined explain only five to 10 percent of investor behavior.


The study, "Nature or Nurture: What Determines Investor Behavior?", was conducted by Stephan Siegel, assistant professor of finance at the University of Washington's Foster School of Business, and Amir Barnea and Henrik Cronqvist, assistant professors of financial economics at Claremont McKenna College's Robert Day School of Economics and Finance.

The researchers cross-referenced nearly 38,000 twins in the Swedish Twin Registry, the world's largest, with comprehensive personal financial data--stocks, bonds, real estate, cash--collected by the Swedish government. This data allowed a comprehensive method to measure genetic versus environmental impact on investing and personal finance.

"We found that genetics explains differences in investor behavior much more than everything else that people have proposed," said Siegel.

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. 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.

"We found that the correlation among twins held true, no matter what their age and life experience," said Barnea. "Although family environment has a limited impact on young twins' behavior, that disappears as they age."

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.

"There is always going to be some part of you that is predetermined at the moment you are born, and we're learning that the way you invest is at least partly hereditary," said Cronqvist.

The full study is available for download at

SOURCE University of Washington and Claremont McKenna College