Investor behavior is largely determined by nature rather than nurture according to a new study of identical twins conducted by finance professors at Claremont McKenna College and the University of Washington.
The study, conducted by Washington's Stephan Siegel and Amir Barnea and Henrik Cronqvist of McKenna, 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 five to 10% of investor behavior.
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.
"We found that the correlation among twins held true, no matter what their age and life experience," says Barnea.
The researchers additionally 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," says Cronqvist.