Robert Shiller has a new NYT column riffing on an academic paper from economists Mark Grinblatt (UCLA), Matti Keloharju (Aalto University), and Juhani T. Linnainmaa (University of Chicago) on the subject of IQ and investing. The gist: People with higher IQs follow better rules for investing.
Here's the abstract: Stock market participation is monotonically related to IQ, controlling for wealth, income, age, and other demographic and occupational information. The high correlation between IQ, measured early in adult life, and participation, exists even among the affluent. Supplemental data from siblings, studied with an instrumental variables approach and regressions that control for family effects, demonstrate that IQ’s influence on participation extends to females and does not arise from omitted familial and non-familial variables. High-IQ investors are more likely to hold mutual funds and larger numbers of stocks, experience lower risk, and earn higher Sharpe ratios. We discuss implications for policy and finance research.
What's cool -- as Shiller notes -- is how they did the study. Everyone in the Finnish military has to take an IQ test, and tax records are public, so they were able to get a detailed look at people's holdings, and compare them against IQ results…..
Read more: http://www.businessinsider.com/how-people-with-high-iqs-invest-2012-2#ixzz1nZ8uPHSS
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