This Fascinating Study Of 15,208 Pairs Of Swedish Twins Sheds New Light On Investor behaviour

swedish twins runnersSweden’s Susanna and Jenny Kallur, champion runners.

Photo: Michael Steele / Getty Images

It would seem that an individual’s ability to invest could have something to do with genetics.Stephan Siegel of Arizona State University and Henrik Cronqvist of Claremont McKenna College (via The Economist) studied the investment patterns of 15,208 pairs of Swedish twins, of which 4,636 pairs were identical twins.

The Swedish Twin Registry is the largest twin registry in the world.  The Swedish Tax Authority also maintains robust records of individuals’ financial portfolios, including all transactions during the year.

According to Siegel and Cronqvist’s findings, identical twins display investing patterns that are more similar than those of fraternal twins.

Because identical twins are genetically identical whereas fraternal twins share around 50 per cent of each others genes, the researchers argue that genetics can explain up to 50 per cent of the variation in investment behavioural biases, including the reluctance to realise losses, performance chasing, and home bias.

From their abstract:

…We find no evidence that education is a significant moderator of genetic investment behaviour. Genetic effects on investment behaviour are correlated with genetic effects on behaviours in other domains (e.g., those with a genetic preference for familiar stocks also exhibit a preference for familiarity in other domains), suggesting that investment biases is only one facet of much broader genetic behaviours. Our evidence provides a biological basis for non-standard preferences that have been used in asset pricing models, and has implications for the design of public policy in the domain of investments.

You can download their findings at SSRN.

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Photo: Stephan Siegel of Arizona State University and Henrik Cronqvist of Claremont McKenna College

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