A study by two university professors has found that those who are reckless behind the wheel of a car are more likely to be reckless when investing their money. Strangely enough, they found a correlation between speeding tickets and risky investing activity, reported in their study "Sensation Seeking, Overconfidence and Trading Activity."
The professors compared Helsinki databases of speeding tickets issued in the late 1990s and early 2000s, to databases on investment portfolios and trading records. With some funky math, the professors were able to determine the correlation between speeding tickets and investment portfolio turnover.
They found that an investor's portfolio turnover rate rose 11% after each speeding ticket received. They also found that as an investor got older, their speeding tickets decreased and their risky trading activity also decreased.
The professors think that the correlation between speeding tickets and risky trading activity has to do with overconfidence. A risky driver thinks he can avoid being caught, and therefore he may also believe he can do an exceptional job picking stocks. So all you speeders beware: You're probably playing a little fast and loose with your investments too. Take more time and look at your investments carefully before heading off into the land of high risk stocks.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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