Patterns of Investment Strategy Aninvestment Strategy and Behavior Among Individual Investorsd Behavior Among Individual Investors

Patterns of Investment Strategy and Behavior Among Individual Investors Author(s): Wilbur G. Lewellen, Ronald C.
Lease and Gary G. Schlarbaum Source: The Journal of Business, Vol. 50, No. 3 (Jul., 1977), pp. 296-333 Published by: The University of Chicago Press Stable URL: http://www.jstor.org/stable/2352539 . Accessed: 22/10/2013 15:36
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RonaldC. Lease,and WilburG. Lewellen, GaryG. Schlarbaum* Patterns of Investment Strategy and Behavior among Individual Investors
In recent years, a substantial amount of attention has been directed in the literature of economics and finance to the question of the investment behavior and portfolio performanceof institutional investors.' Those investigations are natural ones, both because the relevant portfolio data are reasonably accessible and because the institutions involved are rapidly growing accumulatorsand traders of corporateequity securities. The traditional bulwark of the American equity marketplace-the individual investor-however, has been an object of scrutiny only in very aggregativeterms. The trend of his apparent withdrawalfrom direct market participation has been amply documented,2and the appropriate alarums expressed,3 but the causes of that phenomenon remain almost entirely conjectural. Indeed, virtually all
* Respectively, professor of management at Purdue University, associate professor of finance at the University of Utah, and associate professor of management at Purdue. The authors are indebted for financial support for the investigation to the National Bureau of Economic Research, the Investment Company Institute, the Purdue Research Foundation, and the brokerage house referred to in the text. The resources of the Computation Centers at Purdue and the University of Utah have been drawn on extensively in performing the analyses. Professors Frank Bass, Donald King, and Edgar Pessemier of Purdue provided complementary intellectual and emotional assistance. The authors alone, however, bear responsibility for the end product. More specifically, while the study represents a portion of a National Bureau of Economic Research project, it has not undergone the full critical review associated with NBER efforts, and it should not be considered an official NBER publication. 1. See, for example, I. Friend, M. Blume, and J. Crockett, Mutual Funds and Other Institutional Investors (New York: McGraw-Hill Book Co., 1970); M. Jensen, "The Performance of Mutual Funds in the Period 1945-64," Journal of Finance 23 (May 1968): 389416, and "Risk, the Pricing of Capital Assets, and the Evaluation of Investment Portfolios," Journal of Business 42 (April 1969): 167-247; J. Lorie et al., Measuring the Investment Performance of Pension Funds (Park Ridge, Ill.: Bank Administration Institute, 1968); G. Schlarbaum, "The Investment Performance of the Common Stock Portfolios of Property-Liability Insurance Companies," Journal of Financial and QuantitativeAnalysis 9 (January 1974): 89-106; W. Sharpe, "Mutual Fund Performance," Journal of Business 39 (January 1966): 119-38; U.S. Securities and Exchange Commission, Institutional Investor Study (Washington, D.C.: Government Printing Office, 1971). 2. Economic Report of the President (Washington, D.C.: Government Printing Office, 1973); R. Klemkosky, "Institutional Dominance of the NYSE," Financial Executive 41 (November 1973): 14-20; R. Klemkosky and D. Scott, "Withdrawal of the Individual Investor from the Equity Markets," Business Topics 21 (Spring 1973): 7-14; New York Stock Exchange, 1973 Fact Book (New York: NYSE, 1973); R. Soldofsky, Institutional Holdings of CommonStock: 1900-2000 (Ann Arbor: University of Michigan, 1971); U.S. Securities and Exchange Commission. 3. "Are the Institutions Wrecking Wall Street," Business Week (June 2, 1973), pp. 58-66; W. Martin, Jr., "Lower Negotiated Rates Will Force Out Small Investors," Commercial and Financial Chronicle 215 (June 1, 1972): 1-17; C. Wood, "Why It's Hard to Raise Capital Today," Financial Executive 41 (November 1973): 21-28.
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InvestmentStrategyand Behavior
we believe we know about the individual investor's circumstancesand decision processes has been inferred from either broad trading statistics, general security price movements, or portfolio simulations.4With few exceptions,5very little in the way of explicit observationhas been attempted-due undoubtedly to the fact that the necessary data are exceedingly difficult to acquire. This gap in our knowledgemerits dismay not simply because the object of concern shows signs of heading for the exits, but because he has always been-and, even at this writing, continues to be-a significant contributor to the allocational and liquidity functions of the equity markets. Accordingly, it is important that we understand his activities before possible remedial steps to counteract his withdrawal become moot and jurisdiction for the analysis passes from the economist to the archaeologist.The task of the present paper is so defined. In particular, we shall address empirically the matter of the portfolio decision processes of the individual equity investor, using data obtained from a large-scale questionnaire survey of a representative cross-section of such individuals, together with supplementaryactual transactions information describing activity in the correspondingtrading accounts. The objectives are, first, to identify the systematic patterns of investment behavior exhibited and, second, to appraise the rationality of those patterns-that is, are they internally consistent and do they fit with reasonablea priori notions with regardto appropriateresponses to risk, liquidity, and personal tax considerations?
I. THE SAMPLE AND THE DATA
The investor group on which we shall focus consists of a sample drawn from the customer clientele of a large national retail brokerage house. It is comprised specifically of individuals who had accounts open with the firm over the full period from January 1964 through December 1970 and represents a random selection of approximately10% of all the individuals who had such a persistent relationship with the firm. It was stratified geographically to match the composition of the total population of U.S. common-stock holders, as reported by New York Stock Exchange (NYSE) surveys.6 No criterion of account activity was imposed for eligibility, however, and the sample thereforeincludes individuals who embracea broad spectrum of both portfolio sizes and trading frequencies.The precise period chosen for investigation reflectsan attempt to span a variety of external equity market condi4. L. Fisher and J. Lorie, "Rates of Return on Investments in Common Stocks," Journal of Business 41 (July 1968): 291-316. 5. K. Baker and J. Haslem, "Toward the Development of Client-specified Valuation Models," Journal of Finance 29 (September 1974): 1255-63; M. Blume, J. Crockett, and I. Friend, "Stock Ownership in the United States: Characteristics and Trends," Survey of CurrentBusiness 54 (November 1974): 16-40; I. Friend and J. DeCani, "Stock Market Experience of Different Investment Groups," American Statistical Association: Business and Economic Proceedings (1966), pp. 44-51; R. Potter, "An Empirical Study of Motivations of Common Stock Investors," Southern Journal of Business 6 (July 1971): 41-48. 6. New York Stock Exchange.
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The Journal of Business
tions (three upward and two downward major general price movements), tempered by constraints on convenient historical data availability from the brokeragefirm's files. For each of the some 2,500 accounts thus selected, a complete record of transactionactivity over the 7 years was obtained. To the group was then sent a questionnaire which solicited information on demographic characteristics, market attitudes, investment objectives, decision processes, portfolio strategies, and asset holdings. The questionnaire was mailed in mid1972, and just under 1,000 usable completed forms were returned. Through a coding scheme, the questionnairereplies were matched to the underlying transactions recordsfor each of the respective accounts. That map, and the original address file, were thereupon destroyed to preserve the respondents' anonymity.7 It is this combined body of evidence-some of it "hard" and some "soft"; some of it factual and some perceptual-which comprises the raw material for our investigation.8 The key to the usefulness of such evidence, of course, revolves around the issues of the representativenessof the group consideredand the inherent quality of the data provided in the questionnaire replies. Because we have treated both matters at length elsewhere,9we need only summarize those discussions here. They documented (1) that the survey respondents have demographicattributes which line up well with those of both the generalU.S. shareholderhead-of-householdpopulations and a "control group" questionnaire survey sample of brokeragehose customers selected without regard to account longevity; (2) that it was impossible to distinguish the questionnaire respondents from the nonrespondentson the basis of the volume, frequency, and composition of the trading activity in their accounts over the interval studied; and (3) that the over-all completion rate of the interrogatories on the returned questionnaire forms was roughly 95%-suggesting a desirable level of care and attention applied by the respondents to the task with which they were confronted."
7. In the same vein, the entire data file remains with the investigators and will not be transmitted to the brokerage house for analysis. 8. For additional details on the mechanics of sample selection, questionnaire design, and data collection, see R. Lease, W. Lewellen, and G. Schlarbaum, "The Individual Investor: Attributes and Attitudes," Journal of Finance 29 (May 1974): 419-33. 9. Ibid. 10. As would be expected, given the size, geographical coverage, and strong retail orientation of the brokerage firm which supplied the sample. 11. Additional support for this contention is available in the literature of survey research, which indicates that the relative accuracy of questionnaire replies has been found to be a positive function of the educational background and income level of the group queried (J. Lansing, G. Ginsburg, and K. Braaten, An Investigation of Response Error [Urbana: University of Illinois Press, 1961]; J. Lansing and J. Morgan, Economic Survey Methods [Ann Arbor: University of Michigan Press, 1971]). The individuals in our sampleand shareholders generally-are well above average in both respects (J. Bossons, "The Distribution of Assets among Individuals of Different Age and Wealth," in Institutional Investors and Corporate Stock, ed. R. Goldsmith [New York: National Bureau of Economic Research, 1973], pp. 394-428; Lease et al.).
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For all these reasons, we believe the data to be sufficiently reliable,'2 and the sample to be sufficiently representative, to justify extrapolating to the broaderpopulation of individual investors any significant behavior patterns which emerge. Indeed, if the groupstudied is peculiarit is so in a worthwhile way, that is, it is comprisedquite specifically of individuals who have had equity funds under conscious direct personal management for a reasonably extended period of time. As a clientele with whom to address issues of strategy formulationand investment tactics, one could hardly choose a more appropriateset of subjects. Further, an adequate range of personal financial and demographiccharacteristicsis encompassedwithin the group as to permit decent cross-sectionalinferences to be drawn; table 1 portrays certain of those dimensions. In all, therefore,we feel the sample to be both a viable and a valuable microcosm.
II. ANALYTICAL APPROACH
From the questionnaire replies and the transactions data associated with the 972 individuals included therein, variables which give concrete expression to four broad elements of investment activity were developed for analysis. They cover (1) basic portfolio objectives, (2) informationcollection and Table 1 Characteristicsof the Investor Sample
Characteristic % Characteristic %
Age (years): Under 21................ 21-34 .................. 35-44 .................. 45-54 .................. 55-64 .................. 65 and over.............. Sex: Male .................. Female .................. Family income ($): Under 5,000 ............. 5,000-9,999 ............. 10,000-14,999 ........... 15,000-19,999 ........... 20,000-24,999 ........... 25,000-49,999 ........... 50,000 and over .......... Education: Less than H.S... . H.S. graduate ............ Some college ............. BA/BS .................. Graduate degree..........
< 1 3 12 29 26 30 80 20 2 8 15 13 18 26 18 11 12 23 31 23
Occupation: Professional/technical . Manager/proprietor . Clerical/service. Craftsman/laborer. Farm owner/farm laborer Not employed. Total asset holdings ($): Under 100,000 .27 100,000-199,999 .30 200,000-299,999 .15 300,000-399,999. 400,000 and over. Common stock holdings ($): Under 50,000 .51 50,000-99,999 .18 100,000-149,999 .10 150,000-199,999. 200,000 and over.14 Annual trading volume ($): Under 5,000 .29 5,000-9,999 .18 10,000-14999 .11 15,000-24,999 .12 25,000 and over .30
27 29 7 3 2 32
8
20
12. The transaction records, of course, are completely "hard" and make possible a variety of internal checks on the validity of the questionnaire replies, as will be discussed below.
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decision mechanics, (3) instrument selection and portfolio composition, (4) return perceptions and market attitudes. We regard these not only as the key behavioral dimensions but, in the hierarchyindicated, as a logical directional model of the investment process. Thus, we see the individual as moving sequentially from goals to analysis to choice to evaluation-with the feedback loop being closed from the last of these back to the first for the next round of decision making. Our intent here is to identify those aspects of personal circumstances which appear to account for differencesin behavior at each stage, to explore the matrix of interactions among the several stages, and to assess the rationality and consistency of the patterns manifested. For a variety of reasons, such a task commends reliance on a set of analytical techniques other than the popular tools of correlationand regression typically employed in financialresearch.To begin with, a numberof the relevant variables-particularly those derived from the questionnaire-are categorical rather than continuous, and many have no inherent ordinal character.'3While dummy variables to represent these categories could be introduced in a regressionequation, the fact that the resulting error terms tend not to be normally distributed compromises the interpretation of the findings-and the volume of such variables requiredrapidly consumesavailable degrees of freedom. Second, even in the case of attributes which are more standardin form, the assumption of linearity in the relationshipswhich is required for the application of regression techniques is often violated. Equally bothersome is the presence of substantial multicollinearity among the likely independent variables, coupled with the frequent lack of natural scaling opportunities as devices for circumvention.'4Third, there is clear evidence of segmentation in the underlying behavior patterns, of a sort which the usual imposition of a regressionformat on the sample as a homogeneous entity is apt to conceal-especially since solid a priori hypotheses about many of the possible interactions we must deal with are not readily available. Indeed, we are aware of that segmenting'5only as a consequence of having explored alternative modes of analysis that are designed explicitly to disassemble the sample, to search for candidate variables, and to reveal relationships that apply only to a portion of the total group.'6 Finally-and perhaps most importantly-the thrust of regressionand other conventional econometrictechniques is to attempt to identify the presence of systematic relationshipsby criteriainvolving the degree of adherence of everyobservationin the data set to the pattern in question. The associated tests of significance, therefore, are conducted in terms of weighted-average
13. As examples, sex, occupation, security selection approach. 14. Thus, if sex and income level are highly intercorrelated (as they are), and together are thought of as potential independent variables in attempts to explain some aspect of portfolio construction, a legitimate common scalar to alleviate the problem is difficult to create. 15. To illustrate: certain differences in investment style show up only at investor ages 44 and under, and then only at annual income levels below $15,000. 16. As treated in J. Sonquist, Multivariate Model Building: The Validation of a Search Strategy (Ann Arbor: University of Michigan Press, 1970); J. Sonquist, E. Baker, and J. Morgan, Searchingfor Structure (Ann Arbor: University of Michigan Press, 1971).
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individual deviations from the hypothesized profile. For phenomena of the characterat issue here, however, such an approachseems inappropriate.Because we are dealing heavily with elements of internal attitude development and decision formulation, we should anticipate a very substantial level of single-observation"noise" due to those peculiaritiesand aberrationsof personal makeup which originate inevitably in circumstance dimensions unreachable by variables we can construct as measurement inputs. Hence, we should properly be skeptical of the possibilities for explaining well the fit of each individual investor in the sample into a neat behavior pattern.'7 Instead, we should aim at detecting significant differences among broader group investment styles and be content with any reasonable successes we can achieve in that regard.The experienceof market researcherswith similar investigations of consumer behavior amply documents the relevant issues and difficulties.'8 Pursuant to such considerations,we shall organizeour analysis around techniques which are in some respects more relaxed in their statistical power but, on the other hand, are more suitable to the inspection of group behavior, segmentation phenomena,and nonlinearities;accordingly, they are more robust and more revealing for the objectives at hand. In particular, we shall cast up the relevant portrayals through extensive use of automatic interaction detection (AID) analyses and multiple cross-classifications. The former approach has received wide attention in the marketing and survey research literature; we shall have further comments about it later on. The latter is nothing more than a convenient device for partitioning a sample across variables into groups for purposes of exposing bivariate relationships. The analysis takes the form of a set of stacked cross-tabulation matrices, with significancetests applied at each level to determine whether the two variables in question are related, holding all other variables con stant.'9 The key to its effective implementation lies in establishing the appropriate control variables-in deciding initially on the dimensions of the "stacks." This is readily accomplished by examining the patterns of ioint
17. The harsh critic will (accurately) translate this to read: We find very low R2 values in the regressions on individual observations. 18. In reflection of which, it has been argued that .. . studies of behavior in which the dependent variable has been some measure taken on individuals have frequently resulted in a small proportion of explained variance by the independent variables. The low R2 values have been generally discouraging to marketing scholars. Many think that the ''noise" must be the result of poor measurement methods, and that the development of improved measures will result in substantially reduced noise levels. While one can only applaud attempts to improve measurements, and it is true that measurement error contributes to noise, is it not now time to give serious consideration to the proposition that there are substantial stochastic elements which characterize the behavior of individual consumers? If so, then there are severe limits to the amount of noise reduction which can be achieved by improved measurement, and criteria other than R2 are required for the evaluation of research results" (F. Bass, "Unexplained Variance in Studies of Consumer Behavior," in Control of "Error" in Market Research Data, ed. J. Farley and J. Howard [Lexington, Mass.: D. C. Heath & Co., 1975]). 19. For a full treatment, see M. Rosenberg, The Logic of Survey Analysis (New York: Basic Books, 1968).
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dependencewhich emerge from trial multiple-regressionruns on the data of interest. As an illustration, suppose it were desired to identify those aspects of personal demographic circumstances which account for differences in the annual common stock trading volume of investors. A stepwise regressionof volume on age, sex, income, education, occupation, etc., might suggest that only age and income had detectable influences, but that they were substantially intercorrelatedand that the explanatory power of the equation (run on individual observations) was, in any case, quite low. In seeking then to determine whether sizable group differenceswere nonetheless present, two distinct cross-classificationswould be executed-(1) age groups by trading volume groups, holding income constant; (2) income classes by volume groups, holding age constant-and separate significance tests conducted to test independence within each array. Apart from its (for our needs) logical focus on broader investor categories and its facile accommodation of nonordinal variables, such an analysis has the added virtue of high information content in presentation. Both the direction and magnitude of the patterns at issue appear in bold relief in the tabulations, and any nonlinearities are easily discerned. For these reasons, a cross-classificationcontingency table framework,designed throughout on the basis of preliminaryregressionfindings, will be emphasized in our investigation.
III. VARIABLES EMPLOYED
That investigation will make use of some 30 variables, derived from either the questionnaireresponses or the account transactions records, as descriptors of investment behavior and investor characteristics. Included, for each are seven demographicattributesof the 972 individuals in the sample,20 age, sex, marital status, educational attainment, occupation, income, and family size-plus the following catalog of variables classified according to our perception of their fit into the four elements of the overall investment decision process defined earlier. A. Investmentgoals to him of 1. The investor's rating,on a scaleof one to four,of the importance the followingobjectivesfor his commonstockportfolio capitalgains a) Short-term capitalappreciation b) Intermediate-term capitalappreciation c) Long-term d) Dividendincome he uses in setting his portfolio 2. The investor'sindicationof the benchmark returngoals a) Dow-JonesIndustrialAverage,NYSE Index, Standard& Poor's500, or equivalent b) Averagemutualfundperformance c) Portfolioresultsof friendsor family
20. The net resultof 1,030returnedquestionnaires (froma total mailingof 2,506), less 40 that were unusabledue to incompleteor illegibleresponses,and out of which an additional18 were removedbecauseno commonstock transactionevents appearedfor firm'sfiles between1964and 1970. the corresponding accountin the brokerage
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d) Savingsaccountinterestrates e) Otherpersonalstandard rate of returnthe investorbelieves 3. The averageannualpretaxpercentage is generallyattainablefromhis portfolio 4. The investor'sattitude towardrisk taking, as embodiedin his degreeof on a scaleof one to five,with the statement:"I like to take subagreement, stantial financialrisks to realize significantfinancialgains from investments" B. Decisionmethodsand techniquechoices stockevaluacommon indication as to whichof the following 5. The investor's tion approaches he employs analysis a) Fundamental b) Technicalanalysis fundamental/technical c) Combination d) Rely on accountexecutivefor advice e) Otherpersonalapproach 6. The investor's rating,on a scaleof one to four,of the usefulnessto him, of the followinginformation sources subscriptions a) Investmentresearch house'srecommendations b) His brokerage c) Financialperiodicals counselors d) Paid professional 7. The investor'sindicationas to whetherhe has an accountwith morethan one brokerage house 8. The numberof hoursper monththe investorreportshe spendson investment analysisand decisionmaking 9. The amountof moneythe investorreportshe spendseach year for periodicals a) Financial subscriptions b) Research counseling c) Professional 10. The investor'sindicationas to whetherhe uses as investmentvehicles a) Margintransactions b) Put or call options c) Short sales d) Warrants over the study intervalwhich of the investor'stransactions 11. The percentage were a) Initiatedat his accountexecutive'ssuggestion b) Initiatedby the investorhimself of transactions whichtook place in NYSE commonstocks 12. The percentage over the study interval 13. The percentage duringthe study intervalwhichweremarof transactions gin trades executedduringthe study interval of transactions 14. The total number C. Portfoliocomposition results sharesheld in the investor'sportfolio companies' 15. The numberof different 16. The investor'sreportas to whetherhe owns sharesin any mutualfunds to consistof of the investor'sstockportfoliohe considers 17. The percentages incomesecurities a) Primarily securities b) Primarilycapitalappreciation 18. The percentageof the investor'stotal asset holdingswhich he reportsis investedin commonstocks D. Portfolioevaluation 19. The investor'sindicationof the averageannualpretax rate of returnhe has realizedover the last 5 yearson his portfolio
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on a scaleof one to five, with degreeof agreement, 20. The investor's expressed the statement:"Giventhe risk level of my portfolio,my averagerealized returnhas beenlowerthan the marketaverage" degree of agreement with the statement:"Security 21. The investor's expressed in the shortrun" pricesarenotpredictable 22. The investor'sexpresseddegreeof agreementwith the statement:"My security tradingfrequencyis substantiallyless than for the averageinvestor" Those taken from the questionnaireinstruments typically called-as can be seen-for the checking of multiple-choice categories, or for scaled rating evaluations. The exception was a question on the composition of the subject's total asset portfolio in which he was asked to list the market value (to the nearest $100) of his holdings in each of 15 specific asset forms. It was from those responses that the percentage figures for variable 18 were computed. Variables 11 through 14 were created directly from the underlying actual transactions history in the account involved over the 7-year study interval. The items thus selected-all of which have either inductive appeal or empirical popularity-do not, of course, exhaust the resources available. Well in excess of 100 different interrogatories were on the questionnaire, and the transactionsfile itself contains an abundant variety of data elements. Nonetheless, the indicated variables on which we shall concentrate should, we believe, capture most of the critical aspects of investment behavior and allow an effective identification across the sample of any major patterns and group differences.Moreover, even as it stands the roster offers a sufficiently lengthy array of analytical possibilities as already to tax the likely limits of reader endurance and manuscript size.
IV. INVESTMENT INVESTOR STYLES DEMOGRAPHICS AND
Among the clearest, if not necessarily the most startling, messages which emerge from the data is that investment behavior is in fact very much a direct and systematic function of personal circumstances. Who the investor is-as definedby a relatively short list of standard demographicattributesheavily determines not only what he does but also how he views the process in which he is engaged. Thus, there are a number of statistically significant socioeconomiccross-sectionalpatterns observable;the same key independent variables show up reliably in connection with quite a broad spectrum of investment phenomena; the directions of their influencesare stable and internally consistent; those effects are revealed equally by each of several analytical approaches;and they are generally in accord with what seem logical behavioral scenarios. A coherent story can, in short, be discerned-and, if it contains few dramatic surprises,the singular resourcesof evidence available here for documentationprovide their own ample rationale for a portrayal. By far the dominant elements in the story are investor age, income level, and sex, essentially in that descending order of importance and un-
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questionably as characteristics which override occupation, marital status, family size, and educational backgroundas significant influences. The last four attributes make an occasional modest contribution to the explanation of differences in investment style and strategy, but those contributions are notably largely for their rarity. This hierarchy of impacts is manifest throughout the analysis-in the preliminaryregressionruns which suggested subsequent avenues formore detailed investigation,2'in the AID runs which sought further to uncover a profile of likely candidate variables (see below), and in the cross-classificationmatrices of most immediate interest. PortfolioGoals Those matrices suggest some definite patterns in the investment goal formulation process in several respects. Whereas on an "importance"rating scale of one (irrelevant) to four (very important), the mean responses of the sample to the four objectives posed on the questionnairewere Short-termcapital gains ................... Intermediate-termcapital gains ....... Long-term capital gains ................... Dividend income...................... ..... 1.84 2.45 3.56 2.65
the individual's age had a strong influence on attitudes toward the first of these. The older the investor, whether male or female, the progressively less the reported interest in short-term capital gains as a portfolio goal, as Thus, there is a distinct downwardshift in the relevant rattable 2 shows.22 ings with age and the likelihood that this pattern could have arisen by chance from a sample which was actually homogeneous in attitudes across Accordingly, the characage brackets is well below .01 in both instances.23 terization in folklore that age breeds conservatism (or is it wisdom?) in investment pursuits seems tentatively confirmed. The logical mirrorimage of this phenomenonappears in the attitudes toward dividend receipts as an investment objective, although the relationship has an added income dimension. Table 3 outlines the response patterns in terms of both the gross age and income profiles as well as the bivariate
21. A representative sampling of these is offered in the Appendix. 22. Parenthetically, an unadjusted cross-classification of these ratings by sex alone implied a consistently milder emphasis on short-term profits by women than by men. However, when age was held constant, the phenomenon disappeared. The need to exercise such control was indicated by a preliminary multiple regression of the ratings on the seven demographic variables available, wherein age and sex displayed substantial collinearity. In effect, the women in our sample are, on average, somewhat older than the men and, when that circumstance is taken into account, a number of apparent investment behavior differences between the sexes, here and elsewhere, turn out to be illusory. 23. The underlying test is a simple x2, on the differences between the observed cell sizes and the predicted values assuming homogeneity across categories. At the .01 confidence level, the critical x2 for the 9 degrees of freedom applicable here is 21.7, and the calculated values were 82.8 and 26.8, respectively, for males and females. The test is compromised if predicted cell sizes are as small as five, but the magnitude of our sample (N = 972) easily circumvents that concern. Finally, while the test explicitly addresses only the issue of whethera relationship is present, and does not measure its strength,the tabulations will, in each instance, provide a clear sense of the latter.
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The Journal of Business Table2 Short-Term Capital Gains as a Portfolio Goal vs. Investor Age (Cross-Classification Analysis)
Goal Importance Rating Investor Age (Years) 1 2 3 4 Total
A. Male Investors
Under 45 ....... . 45-54 .......... . 55-64 .......... . 65 and over..
25* .30 .26 .19 1.00 37 .27 .23 .13 1.00 .14 58 .20 .08 1.00 .23 .65 .07 .05 1.00 (Probability of independence< .0001.)
B. Female Investors
Under 45 ....... . 45-54 .......... . 55-64 .......... . 65 and over .
28 .32 48 .30 71 .17 .72 .18 (Probability of
.12 .28 1.00 .13 .09 1.00 .07 .05 1.00 .05 .05 1.00 independence= .0015.)
* I.e., 25% of male investors below age 45 rate short-term capital gains "one" in importance,on a scale of one to four, where the rating categories are: 1 = irrelevant;2 = slightly important; 3 = important; 4 = very important.
relationship between age and goal rating, holding income constant.24The displays reveal that the concernwith dividends increaseswith age but diminishes with family income level, and that at all income levels greater age produces greater expressed relative interest.25Not only do these patterns nicely complement those for the short-term capital gains ratings, but they have obvious appeal as reasonable reactions to personal tax, liquidity, and career-cycleconsiderationsas well. Thus, an individual who already enjoys substantial annual income should have less need for additional immediate cash returns from his investment portfolio, and the heavy tax burden that would be imposed on those receipts further reduces their attractiveness. As the same individual passes his peak employment earnings years and moves toward and into retirement, however, a desire to shift his portfolio toward income securities as a means of offsetting the earnings loss seems eminently appropriate. The evidence cited-which shows the major revisions in dividend importance ratings to occur beginning at age 55 and to be mildest for upper-incomeinvestors-suggests just such a combined set of reactions. The other two investment goal alternatives queried, long-term and intermediate-term capital appreciation, exhibit no comparable sensitivity to personal circumstances.The formerwas so consistently highly rated by the sample as an objective for their portfolios that little scope for discerning
24. Again, an approach prompted by trial regression results that identified the candidate explanatory variables and their attendant collinearity. With age and income held constant, male and female investors' preferences were indistinguishable. 25. The calculated x2 statistics for the tables range from 35.8 to 232.5, all well in excess of the critical values for the .01 confidence level.
Table3 Dividend Income as a Portfolio Goal vs. Investor Age and Income (Cross-Classification Analysis)
Goal Importance Rating 1 2 3 4
A. Age vs Dividend Goal Importance
Investorage (years):
Under 45 .35 45-54 55-64. 65 and over .27 .10 05 .38 .39 .28 .18 .18 .25 .29 .23 .09 .09 .33 .54
B. Income vs. Dividend Goal Importance
Investor family income (: Under 15, 000. 15,000-24,999. . 25,000-49,999. . 50XO0 up
.10 .18 .19 22
.22 .28 .28 .46
.22 .27 .27 .20
.46 .27 .26 .12
C. Age vs. Dividend Goal Importance, by Income Bracket
Investors with incomes below $15,000: Under 45 .29 45-54 55-64. . 65 and over Investors with incomes between 15,000 and $24,999: Under 45 .31 45-54 55-64. 65 and over. Investors with incomes between $25,000 and $49, 999: Under 45 .36 45-54 55-64. 65 and over. Investors with incomes of $50,000 and over: Under 45 .43 45-54 55-64. . 65 and over
.21 .10 04
.33 .47 .21 .13
.17 .15 .30 .21
.21 .18 .39 .62
.30 .14 .04
.43 .36 .26 .12
.18 .26 .32 .25
.08 .08 .28 .59
.27 .08 .08
.31 .33 .24 .21
.23 .29 .30 .24
.10 .11 .38 .48
.30 .07 04
.43 .46 .43 .54
.11 .19 .22 .27
.03 .05 .28 .15
NOTE.-Probability of independence<.0001 in all cases.
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patterns was permitted. The latter had some variation across investor groups, but in neither a systematic nor a statistically significant manner. We suspect, as a concept, it simply was not sufficiently well defined in the survey subjects' minds as to elicit a strong response and that perceptions of it overlapped other, sharpergoal characterizations.In any case, the portfolio objectives that should have conveyed clear (and polar) images-shortrun trading profits and dividend income-did generate both substantial and reasonableintrasample attitude differences.26 When asked about the performancecriterion used in assessing their investment success, some 42% of the respondentsindicated that one of the major public indices-the DJIA, NYSE, and S & P 500 were offeredas illustrations-was selected. Another 45% reported that they had internalized instead a personalstandard of return as an amalgam of experience,evidence, and concepts of "fair" yield. The scattered remainder employed mutual funds, savings account interest rates, or friends' and family experiences as benchmarks.By and large, all these proportions varied little among demographic subgroups.The one exception was a noticeable shift in the direction of adopting one of the major price indices as the predominant criterion by investors aged 65 and over. That move was easily significant at the .01 level and would seem to go hand in hand with the message above that simultaneously there evolves a more stable portfolio strategy which directs increasing allocations to the blue-chip, dividend-paying securities that dominate the popular indices. A translation by the sample of these qualitative performancestandards into a quantitative measureof "adequate"or "reasonable"return, however, produceda very broad-basedand intriguing pattern: the older the investor, the progressively lower his estimate of-as our question phrased it-the annual percentage rate of return, before taxes, which he consideredattainable on a regular basis from investments in common stocks. Table 4 displays the results. While investor age was the only demographic attribute having a detectable influence on these estimates across the sample,27that influencewas obviously strong; views of attainable equity-investment return were more than half again as high among investors below age 45 as among those 65 and older. The extent to which this phenomenon is a reflection
26. An issue whichbearsnot only on these but on all the questionnaire responses, conditionsat the time of the surveyand of course,is that of externalmarketand economic the biases that might therebyhave been introduced.Little concernon this score seems merited,partly becausethe focus hereis on patternsacrossthe sample-presumably,most outside influenceswould have impacted all subgroupsin roughly similar fashion-and was mailedwas in partly becausethe environmentin mid-1972when the questionnaire fromthe 1969-70exciteone. The securitiesmarketshad recovered fact a fairly "neutral" ment quite well, but were neitherstronglybullishnor bearishat the time; the dramatic upheavalswere yet to appear;and international monetary,energy,and commodity-price domesticinflationat the recenthigh rateswas not then the objectof scrutinyand concern that it since has become. 27. Neither incomelevel nor sex displayedan impact,once age was takeninto acon the other hand, held for both sexes separatelyand in all count. The age relationships, incomerages,at the .001 level or better.
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InvestmentStrategyand Behavior Table4 Annual Before-Tax Rate of Return Thought Attainable from a Common Stock Investment Portfolio vs. Investor Age (Cross-Classification Analysis)
Attainable Annual Return Estimate (%) Investor Age (Years) 0-5 6-10 11-15 Over 15 Average Estimate*
(%)
Under45 .......... 45-54 ............. 55-64............. 65 and over........
.10 .11 .23 .29
.35 .47 .55 .54
.35 .25 .14 .11
.20 .17 .08 .06
11.3 10.3 8.1 7.4
NOTE.-Probability of independence< .0001. * Calculatedfrom bracketmidpointsand assumingthe midpoint of the "over 15%" bracket to be 20%.
simply of associated changes in investment strategy, or also includes the lessons of bitter experience, is difficult to assess. Certain findings to be discussed below would argue for at least some role for the "learning" effect. Nonetheless, if the explanation is open to debate the evidence is clear. Equally clear, finally, is a pattern in the respondents' explicit characterizations of their portfolio intentions. On a scale of one to five, ranging from "strongly disagree" (1) to "strongly agree" (5), they were asked their reactions to the statement: "I like to take substantial financialrisks to realize significant financial gains from investments." Table 5 documents a profile which is consistent with the portfolio goal ratings depicted earlier, in that age and expressed risk-taking propensities are inversely related, with the major shifts again taking place at age 55 and beyond. Of interest as well is a pattern which did not emerge, that is, between income level and attitudes toward risk. Upper-income investors saw themselves as no more or no less inclined to assume exposed portfolio positions than did their more modestly situated contemporaries. Evidence on the facts of their trading activities, however-as we shall see-would belie those assertions and suggest that risks are indeed more regularly undertaken as income rises.28 Table5 Expressed Investment Risk-taking Desires vs. Investor Age (Cross-ClassificationAnalysis)
Scaled Desire to Take Risks Investor Age (Years) 1 2 3 4 5
Under45 . 45-54 55-64 65 and over.33
20 .20 .29
.18 .18 .24 .26
.17 .17 .12 .17
.27 .28 .23 .15
.18 .17 .12 .09
NOTE.-Probability of independence = .0021.
28. See also R. Cohn, W. Lewellen, R. Lease, and G. Schlarbaum, "Individual Investor Risk Aversion and Investment Portfolio Composition," Journal of Finance 30 (May 1975): 605-20.
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Investing Methodology The investment tactics and technology employed within the sample display a somewhat richer variety of demographic differences than do the goals toward which the several subgroupsappear to be aiming. In particular, certain style and process distinctions between male and female investors become apparent. The areas of information gathering and decision making offers pertinent illustrations. Table6 Investment Analysis and Investor DemoAnalysis) graphics (Cross-Classification A. Primary Security Selection Approach vs. Age and Sex
Primary Approach to Analysis Fundamental, Technical, or Both Rely on Broker Advice
Investor Age (Years)
Other
Male investors: Under 55 .................... 55-64 ....................... 65 and over .................. Female investors: Under 55.................... 55-64 ....................... 65 and over ..................
.09 .71 .20 .17 .09 .71 .14 .11 .75 (Probability of independence=.0192.) .09 .35 .56 .12 .36 .52 .11 .34 .55 (Probability of independence=.9778.)
B. Rating of Value of Investment Information, by Sex

Information Useful Source of Information Never Occasionally Generally Always
Broker: Males ................. Females .............. Research service subscriptions: Males ................. Females ...............
.20 .41 .32 .07 .27 .43 .07 .23 (Probability of independence=.0712.) .11 .21 .45 .23 .05 .10 .54 .31 (Probability of independence=.0001.)
C. Time Spent per Month on Investment Analysis and Decision Making, by Sex
Time Spent (Hours) Sex 0-5 5-10 10-20 Over 20
Males ................... Females .................
.16 .14 .19 .51 .06 .10 .16 .68 (Probability of independence= <.0001.)
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InvestmentStrategyand Behavior Table6 (Continued) D. Money Spent per Year on Financial Periodicals, Investment Research Services, and ProfessionalCounseling,by Income and Sex
Dollars per year Family Income ($) Under 15 16-50 Over 50
Male investors: Under 15,000 ................ 15,000-24,999 ............... 25,000-49,999 ............... 50,000 up ................... Female investors: Under 15,000 ................ 15,000-24,999 ............... 25,000-49,999 ............... 50,000 up ...................
.23 .26 .51 .34 .28 .38 .42 .27 .31 .52 .29 .19 (Probability of independence<.0001.) .17 .21 .62 .27 .17 .56 .28 .22 .50 .41 .23 .36 (Probability of independence=.2860.)
E. Frequency of Multiple Broker Accounts, by Income Level and Sex

Number of Accounts Family Income ($) More Than One
One
Male investors: Under 15,000 .......................... 15,000-24,999 ......................... 25,000-49,999 ......................... 50,000 up ............................. Female investors: Under 15,000 .......................... 15,000-24,999 ......................... 25,000-49,999 ......................... 50,000 up .............................
.28 .72 .43 .57 .45 .55 .61 .39 (Probability of independence< .0001.) .25 .75 .36 .64 .26 .74 .45 .55 (Probability of independence= .2785.)
In general, male investors claim to do considerably more of their own security analysis and allege spending more time and money on that activity than do women. The latter tend to rely heavily on their broker's (account executive's) advice for portfolio decisions. Additionally, suggestions of behavior modification patterns can be seen within the male subgroup-in the direction of taking over rather more of the analytical burden and devoting more resourcesto it as they become older and more affluent-whereas women by and large maintain a given level of dependence on their brokers.Table 6 provides a sense of these phenomena in selected, but representative, dimensions.
The tabulations reveal that, at all ages, the proportion of male in-
312
vestors who designate "brokeradvice" the primary source of their security selection decisions is well below that of their female counterparts. The decline with age in that proportion is also statistically significant for males but not for females. Male investors, correspondingly, are marginally less sanguine in a direct rating of the value of their brokers' counsel and substantially more entranced by the usefulness of paid external research services. They commit detectably more time to digesting and evaluating information to reach decisions, at least by their own reckoning. Reflecting these assertions, they report both greater informationcollecting expendituresat all income levels as well as a willingness to spend increasing amounts as their financialsituation permits. And, as a last manifestation, they are much more prone to have accounts with more than one brokeragehouse rather than accede to the recommendationsof a single firm. Thus, though income level is the dominant influence on the popularity of multiple accounts, the pattern is a peculiarly male one, and the frequency The wisin the group exceeds that for females in every earnings bracket.29 dom of all these search and analysis procedures,of course, is an open question, especially since we observed that the ultimate portfolio objectives involved seem congruent with those of female investors. Only hard evidence on portfolio performancehistories can resolve that issue-an investigation which must await another forum. The hard evidence that is immediately available-on various raw dimensions of account trading activity-would support the notion that differences in proclaimed analytical style do have at least a few portfolio assembly and turnoverimplications. As an example, it would be reasonableto hypothesize, on the basis of the cited statements about greater attention to security analysis and decision making, that male investors would trade more often and that trading frequency on their part might well increasewith income. Table 7 suggests such a profile of heavier "management,"although the significance level is rather modest. On the other hand, if we integrate these figures with the finding of a greater incidence of multiple brokerage accounts by males, and in higher income brackets, we can be more confident that a pattern exists, since additional transactions which we cannot observe directly will take place in those other accounts. The stability of the trading pattern for females, Qfcourse, would merely be reinforcedby such an adjustment. In terms of the dollar magnitude of transactions, incidentally, the story is unambiguous:for both males and females, the relationship between dollar volume and income is significant at the .0001 level. In short, trades appear to occur more often, and they clearly are in larger denominations among higher-income-particularly male-investors.30
29. No significant occupation, education, or family-status effects emerged in the cross sections. To the degree there was a preliminary suggestion thereof, it uniformly disappeared when income and age were controlled for. 30. A commensurate age vs. frequency profile is not discernible, almost certainly as the result of two conflicting forces. As observed, the older the investor, the more time and energy he spends on security analysis-presumably, therefore, the more inclined he would be to transact. Countering that influence, however, is the evolution of a more stable
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InvestmentStrategyand Behavior Table 7 Security Trading Frequency and Investor Demographics (Cross-Classification Analysis)
Transactions per Year 0-5 6-10 Over 10
A. Trading Frequency, by Sex
Male investors .............. Female investors ............. .
.27 .24 .49 .19 .25 56 (Probability of independence= .0881.)

B. Trading Frequency by Income Level, by Sex
Family income, male inves-
tors ($):
Under 15,000 ............. . 15,000-24,999 ............ . 25,000-49,999 ............ . 50,000 up ................ Family income, female inves.23 .28 49 .30 .19 51 .22 .27 51 .30 .27 .43 (Probability of independence= .0951.) 58 55 53 .17 .25 .20 .25 .19 .28 .23 .23 (Probability of independence= .9943.)
tors ($):
Under 15,000 ............. . 15,000-24,999 ............ . 25,000-49,999 ............ . 50,000 up ................ .55
An additional aspect of the portfolio assembly process concerns what may be denoted "solicited"account activity. Each of the trades in the transactions file for the sample covering the 7-year study period carries a "tag" supplied by the relevant account executive indicating whether it was executed pursuant to his recommendationor was initiated by the customer. Because we necessarily have no real check on the rigor of these designations, their reliability is hard to assess. The attributions individually may be somewhat imprecise, but unless they are entirely random they should provide some further insight into the comparativedegrees of overt reliance on broker advice. Conveniently,phenomenaconsistent with the questionnairescenario emerge: male investors are recordedby the account executives to have a lower percentage of solicited trades than females; that percentage diminishes for males with age; and the female percentage displays no age sensitivity. Equally consistent patterns of risk-taking propensities can be seen as well. The survey participants were asked to indicated whether they normally include in their portfolios a list of security types and transaction forms that
long-term dividend-oriented investment goal posture dictated by his retirement circumstances. The effects seem generally to be offsetting.
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might legitimately be regarded as embodying rather higher degrees of risk than the standard "long" cash position in equities: warrants, put and/or call options, margin purchases, and short sales." Definite cross-sectional profiles of differential use were manifest; table 8 presents the findings for margin transactions. The table shows substantial drop in the frequency of such trades with age-especially at 55 and beyond-and an increase with investor income level. The former pattern fits exactly the investment goal The latter would imply that and risk-preferenceevidence cited earlier.32 risk aversion diminisheswith greaterpersonalaffluenceand is, in some sense, even more compelling when combined with the indications that high-income Table8 Frequency of Margin Trades vs. Investor Demographics (Cross-Classification Analysis)
Use Margin Do Not Use
A. Margin Use by Age Bracket
Investor age (years): Under 45 ................ 45-54 ................... 55-64 ................... 65 and over ..............
.57 .43 .58 .42 .63 .37 .38 .62 (Probability of independence= .0001.)
B. Margin Use by Income Level
Family income ($): Under 15,000 ............ 15,000-24,999 ........... 25,000-49,999........... 50,000 up ...............
.40 .60 .42 .58 .49 .51 .42 .58 (Probability of independence= .0014.)
C. Margin Use by Family Size
Family size (N): 1.................... 2 .................... 3 .................... 4 .................... 5 or more ................
.61 .39 .61 .39 .47 .53 .47 .53 .38 .62 (Probability of independence= .0001.)
31. These were not, however, termed"risky" items on the questionnaire. The characterization is our own. 32. As does the supplementary finding that no male/female differences in margin use are apparent when age and income are held constant. Recall that, unlike the case for analytical styles, male and female investor goal structures and expressed risk-taking desires were indistinguishable within comparable age and income circumstances.
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individuals do not considerthemselves more risk inclined. In effect, they become increasinglyinsensitive to that exposurewhile progressively undertaking it. A personal utility function embodying decreasing relative risk aversion with income (wealth) would seem superficiallyto be the imputation.33 The other devices listed display a duplicate array of relationships-in direction, strength, and statistical significance. The added fillip 'inmost instances, interestingly, is the final one shown for margin use in the table: a negative influence of family size. The folklore that investors with many dependents adopt a conservative investment stance therefore gains some support. In any event, the evidence that the investment goal profiles identified previously find systematic expression in explicit market operations is both reassuringand reinforcing. Portfolio Composition The same sort of systematic expression is embedded in the portfolios which those operations create. A key illustration is provided in table 9, which Table9 Number of Different Corporations'Securities Included in Investment Portfolios vs. Investor Demographics (Cross-ClassificationAnalysis)
Number in the Portfolio Investor Age 0-5 6-9 10-15 Over 15
Family income below $15,000: Under 45 .................... .50 45-54 ....................... .32 55-64 ....................... .44 65 and over .................. Family income between $15,000 and $24,999: Under 45 ................... .57
.21 .25 .04 .27 .26 .15 .30 .16 .10 .28 .34 .19 .19 (Probability of independence=.0024.) .25 .08 .10
45-54........................35 55-64........................16
65 and over ..................
.29 .24
.20 .31
.16 .29
.34 .20 .40 .06 (Probability of independence<.0001.)
Family income between $25,000 and $49,999: Under 45 .................... .46 .18 .26 .10 45-54 ....................... .25 .30 .26 .19 55-64 ....................... .16 .19 .37 .28 65 and over .................. .19 .54 .16 .11 (Probability of independence<.0001.) Family income of $50,000 and over: Under 45 .................... .26 .29 .20 .25 45-54 ....................... .12 .25 .30 .33 .22 55-64 ....................... .07 .19 .52 65 and over .................. .54 .04 .34 .08 (Probability of independence=.0023.)
33. A conclusion confirmed by the analysis in Cohn et al.
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shows the association between the number of different firms' shares contained in individual portfolios and the age and income of the investor involved. As a measureof diversificationthis parameteris admittedly crudesince it does not comprehendthe risk characteristicsof the constituent securities-and it may reflect simply a process of accumulation with age rather than risk reduction. By either interpretation, however, the script is easy to read: the older the investor, whatever the family income situation, the greater the variety of equity issues in the portfolio. The global average is eight different companies at ages below 45 and 13 companies in the 65-and-over group. In none of the age brackets were there any significant distinctions between male and female investors.34 Correspondingevidence emerges on the relative emphasis within the portfolios on "income" securities. The questionnaire asked the investor to specify the respective proportions of total holdings that were regarded as being primarily (a) for the purpose of generatingdividend income and (b) for producing capital gains. Again, age has the dominant influence, as table 10 Table 10 Income Securities as a Percentage of the Portfolio vs. Investor Demographics (CrossClassificationAnalysis)
Portfolio Percentage Investor Age 0-15 15-25 25-50 Over 50
Family income below $15,000: Under 45 .................... .46 45-54 ....................... .38 55-64 ....................... .16 65 and over .................. Family income between $15,000 and $24,999: Under 45 .................... .49 45-54 ....................... .40 55-64 ....................... .21 65 and over .................. Family income between $25,000 and $49,999: Under 45 .................... .49 45-54 ....................... .24 55-64 ....................... .09 65 and over .................. Family income of $50,000 and over: Under 45 .................... .43 45-54 ....................... .39 55-64 ....................... .20 65 and over ..................
.25 .21 .08 .18 .35 .09 .05 .44 .35 .05 .23 .62 .10 (Probability of independence<.0001.) .14 .14 .23 .22 .18 .20 .29 .10 .40 .11 .31 .53 .05 (Probability of independence<.0001.) .15 .31 .05 .22 .38 .16 .10 .44 .37 .11 .46 .33 .10 (Probability of independence<.0001.) .08 .26 .23 .28 .15 .18 .17 .41 .22 .19 .35 .35 .11 (Probability of independence=.0024.)
34. A similar result holds for all the portfolio elements discussed in this section.
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documents. At all income levels, the reported income-security fraction rises steadily across increasing age groups. Investor assertions about underlying goals therefore continue to appear internally consistent. A broadenedconcept of the portfolio, of course, is if some interest as well, and among the questionnaireinterrogatorieswas a request for a listing of the investor's dollar holdings in some 15 asset forms in addition to equity securities under direct management. Included on the roster were savings and checking accounts, mutual fund shares, corporate and government bonds, commodity futures, personalresidenceand property, other real estate, life insurance, and ownership interests in the individual's own professional or small-business enterprise. Although a complete analysis is beyond our purview here, two dimensions of the responses deserve some attention for the perspective they provide. The first-the role of the directly held common stock portfolio in the total collection of assets-is summarizedin table 11. It is apparent that the proportionate commitment to this mode of investment is positively and strongly age related,35the correspondingreductions (not shown) occurringlargely in the personal residence, life insurance, and own-business categories. All three have obvious life-cycle rationales. The added negative influence of family size on the emphasis on direct equity investments buttresses the risk-averting stereotype mentioned above. Also, since family size did not emerge as a factor in the income-security pattern within the equity portfolio, the inference would be that whatever trade-off Table 11 Common Stocks as a Percentage of Total Personal Assets vs. Investor Demographics (Cross-Classification Analysis)
Percent of Total Assets 0-12 12-28 28-50 Over 50
A. Common Stock Percentage vs. Age
Investor age (years): Under 45 .................... .36 45-54 ....................... .29 55-64 ....................... .19 65 and over .................. .19
.30 .29 .29 .17
.22 .22 .31 .27
.12 .20 .21 .37
B. Common Stock Percentage vs. Family Size
Family size (N): 1 ....................... .09 2 ....................... .23 3 ....................... .30 4 ....................... .29 5 or more .................... .34
.17 .24 .23 .35 .34
.27 .26 .29 .25 .21
.47 .27 .18 .11 .11
NoTE.-Probability of independence < .0001 in both cases.
35. The percentage categories were chosen to divide the sample roughly into quartiles.
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for income and safety is made in the large-family context occurs via a shift into savings accounts and bonds rather than into dividend-paying common stocks. The findings for the asset that is in principle the closest substitute for a personally managed collection of equities-mutual fund shares-are as clear, but noticeably less congenial to interpretation. Table 12 indicates that the incidence of such holdings is concentratedin the 45-54 age bracket of our sample, other age ranges being virtually indistinguishableand no other demographicattributes displaying any impact. Conceivably, this is merely historical accident in that these were the individuals who were most susceptible to the appeal of funds during the halcyon days of fund sales in the late 1950s and early to mid-1960s. They would have been some 10-15 years younger at that stage, less confidentof their own security-analytic capacities if our previous portrayals are accurate, but yet beginning to accumulate investable funds. Whatever the rationale, no neat pattern of substitution of fund shares for direct equity holdings can be discerned.6 Opinions and Evaluation The portfolio behavior observed, of course, both influencesand in influenced by the investor's reaction to the market environment which surroundshim. An important element in those assessments presumablywould be the degree to which he believes he can accurately forecast the outcome of his decisions. As a means of assaying the profile of such beliefs, we requested each of the survey participants to evaluate-again on a scale of one to five, where one denoted strong disagreementand five strong agreement-the statement "security prices are not predictable in the short run." The results, which give evidence of a systematic learning response, are contained in table 13. The older the investor, the more skeptical he becomes of his predictive powers. Table 12 Mutual Fund Ownershipvs. Investor Age (Cross-ClassificationAnalysis)
Frequency of Ownership Investor Age (Years) Do Own Do Not Own
Under 45 .................. 45-54 .................... 55-64 .................... 65 and over ................
.38 .51 .42 .41
.62 .49 .58 .59
NoTE.-Probability of independence = .0260.
36. In fact, something like the reverse is implied by a cross-classification of fund ownership frequency vs. the number of different securities in the direct portfolio, holding constant on age brackets. The data show a positive relationship between the two, indicating that the investors in our sample tend actually to use fund purchases as a complement to personal diversification.
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InvestmentStrategyand Behavior Table 13 Opinions of Stock Price Predictability vs. Investor Age (Cross-ClassificationAnalysis)
Prices Are Not Predictable Investor Age (Years) Strong Disagree Mild Disagree Mild Agree Strong Agree
Neutral
Under 45 ............. . 45-54 ............... .04 55-64 ............... .01 65 and over ...........
NoTE-Probability
04 .01
.19 .15 .10 .07
.16 .09 .12 .12
.40 .45 .44 .32
.21 .27 .33 .41
of independence = .0009.
The documented moves toward a longer-terminvestment horizon with age, therefore, would seem to be attributable not simply to tax and incomereplacement considerations, but also to an experience-inducedreappraisal of one's ability to outguess the rest of the investment community. No other demographiccharacteristics-sex and income included-appeared to evoke any similar reaction patterns across the sample. Further indication of an educational process, as well as commensurate portfolio strategy revisions, emerges in the reports of realized investment results. The question posed was: "What is your impression of your actual average annual before-taxportfolio return over the last five years?"Table 14 clearly suggests a narrowingof the return distribution with age-significant at the .0001 level. Thus, the younger investor who engages most heavily in short-run speculation does record the widest range of consequences. The logic is compelling,and its reflectionin the replies increases confidencein the respondents' careful reporting. Little, however, can be said at this stage about the averagereturns identified. We might well have expected them to decline with investor age, given the other elements in the portfolio story, but not necessarily so, and we have not yet assembled the data to appraise the accuracy of those assessments. Table 14 Reported Realized Pretax Annual Portfolio Returns vs. Investor Age (Cross-Classification Analysis)
Reported Annual Return (%)
Investor Age (Years)
Loss
0-5
5-10
10-15
Over 15
Under 45 ............. . 45-54 ............... .12 55-64 ............... .09 65 and over ...........
12
.05
.18 .15 .14 .20
.31 .33 .47 .42
.17 .28 .19 .22
.22 .12 .11 .11
NoTE.-Probability of independence = .0001.
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Summary An overview of the full set of demographicrelationshipsportrayed therefore reveals both a reasonable and consistent collection of phenomena. Strong indications of systematic changes in investment objectives and risk preferences across age brackets-and, to milder extent, income classes-are apparent. These are mirrored in differences in investment tactics, portfolio composition, and environmentalattitudes. Though analytical styles are diverse, especially between the sexes, the ultimate goals and resulting decisions have an underlying harmony. None of the patterns violates any tenets of rational behavior; by and large, they fit traditional hypotheses; evidence of incongruity is sparse. For all that, the findings were by no means inevitable, nor has appropriate documentation heretofore been available.
V. PORTFOLIO PORTFOLIO GOALS PROCESSES AND
The matter of the congruencebetween stated goals and observableactivities, of course, is a majorpreoccupationof the behavioral researcher.The area of personal investing in particular is one which is replete with expressions of both concernand skepticism as to whether what people say is a decent guide to what they do. We have addressed that issue for our sample above but have done so essentially indirectly. That is, the question of the behavioral follow-through on alleged investment goals has been examined as a byproduct of the analysis of demographiccross-sectionalinfluences.We sought to identify the latter for each of the style and strategy variables separately and then went on to catalog the observable common threads. We need not, however, rely on so circuitous an approach;we may explore the relationship between objectives and actions by a direct investigation of the patterns of statistical associationbetween the two-ignoring the demographicdimension entirely and groupinginvestors solely by reported investment desires. Table 15 provides a condensation of the outcome of a series of crossclassification analyses focused on this question. In each instance, the investor's expressed rating of the importance of a basic investment goal is tested against a specific measure either of portfolio composition or trading activity. The portrayal is condensed for reasons of space limitations-illustrations of two of the tableaus are included-and is restricted to the shortterm capital gains and dividend-incomegoal categoriessimply because these are the poles of the spectrum. As discussed previously, the responses to neither the long-term nor intermediate-termcapital appreciation objective ratings displayed any detectable patterns across the sample. Uniformly, therefore, they were uncorrelatedwith indices of investor personal circumstances and portfolio strategies. The results shown in the exhibit, however, are persuasive. Differences in stated aims are systematically reflected in differencesin behavior-in the appropriate directions. Thus, the more important the respondent claims
Table 15 Investment Goals and Investment Behavior (CrossClassificationAnalysis) A. Association with Goal Importance Ratings
Short-Term Capital Gains Aspect of Investment Behavior Direction Significance* Dividend Income Direction Significance*
Number of different firms' shares in the investment portfolio................... Percentage of the portfolio in income securities .............................. Number of security transactions executed . ................ per year Expressed Incidence of Use of 1) Margin purchases................ ........ 2) Put or call options ........ 3) Short sales ....................... 4) Warrants ........................ Margin transactions as percentage of actual . ............ total transactions Percentage of transactions in NYSE securities ..............................
Neg. Neg. Pos. Pos. Pos. Pos. Pos. Pos. Neg.
.0012 < .0001 < .0001 <.0001 < .0001 <.0001 <.0001 < .0001 .0007
Pos. Pos. Neg. Neg. Neg. Neg. Neg. Neg. Pos.
.0001 < .0001 < .0001 <.0001 < .0001 <.0001 <.0001 < .0001 < .0001
B. Rating of Importance of Short-Term Capital Gains as an Investment Goal vs. Percentage of Actual Transactions Executed on Margin
Margin Percentage Goal Rating 1 = irrelevant ....................... 2 = slightly important ....... 3 = important ....................... 4=very important .......... None 1-49 50-79 80 up
........ ........
71 .09 .07 .13 .15 .14 .13 .58 .19 .21 .47 .13 .22 .18 .23 .38 (Probability of independence<.0001.)
C. Rating of Importance of Dividend Income as an Investment Goal vs. Percentage of Actual Transactions Executed in NYSE Securities
NYSE Percentage Goal Rating 0-49 50-69 70-84 85 up
1 = irrelevant ....................... 2= slightly important ....... 3 = important ....................... 4=very important ..........
........ ........
.19 .38 .30 .26 .25 .26 .25 .22 .22 .19 .23 .19 (Probability of independence<.0001.)
.13 .23 .31 .39
* The probability that the variables are not correlated.
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short-term capital gains to be as an investment goal, the less diversified his portfolio, the lower the fraction of that portfolio he interprets as providing returns primarily in the form of dividends, the more often our supporting transactions file indicates he trades, the more frequently he reports using risky-and generally short-horizon-investment vehicles, the higher the percentage of the total transactions recordedin the file for him that are in fact margin purchases,and the lower the percentage thereof that are in the more seasoned securities on the NYSE rather than on the American Exchange, regional exchanges, or the over-the-countermarket. When profiled against the ratings for dividend income as a goal, the same measures of behavior show up with equally strong and exactly opposite relationships.37 All are logical, and all confirm directly the consistencies suggested inferentially by the preceding demographiccross-sectionalscenario.
VI. OTHER BEHAVIORAL PHENOMENA
The data offer an opportunity to examine a wide range of links between the components of investment strategy, portfolio tactics, and market evaluations. Of paramountinterest are those bearing on the attitudes of the sample toward risk, on the nature of the returns expected from investments, and on the matrix of interrelationshipsamong some key elements of behavior and opinion. These may be assayed briefly using both the "soft" evidence from the questionnaireand the "hard" facts of the underlying transactions histories. Our purest index of sentiments toward risk is embedded in the overt reactions to the statement described previously: "I like to take substantial risks in order to realize significant financial gains from investments." Each investor was asked to indicate his concurrencewith that statement, on a scale of one to five. Table 16 documents the patterns of association between these ratings and certain aspects of trading and investment style. The individuals who expressed the strongest agreement with the characterization turn out, first of all, to be the ones who reported the greatest incidence of margin, option, warrant, and short-sale transactions and the smallest proportion of income securities in their portfolios. Looking at the transactions file, we find them also to have the highest percentage of margin trades38 and the lowest percentage of trades involving NYSE securities. Not surprisingly, their ratings of short-term capital gains as a portfolio goal are at the top of the survey group; those of dividend income at the bottom. Finally, they are the ones who spend the most time per month on analysis and decision
37. The associated x2 values range as high as 412.1, for bivariate tables typically embodying 9 degrees of freedom. As an added sidelight, it turns out-at the .001 levelthat high ratings for short-term capital gains go hand in hand with an especially heavy "technical" approach to security analysis. 38. Verified by a separate cross-classification of reportedmargin use vs. actual margin trading frequency, from the transaction file. The relationship was positive, and significant at better than the .0001 level.
323
making. A sampling of the full tables is provided. In all instances, the pattern is strong and the significance is high. In our view, each also has considerable intuitive appeal as a behavioral manifestation. Commensuratephenomena are visible (table 17) in the area of return expectations. Those investors who checkedfiguresin the high rangesfor "the average annual pretax percentage rate of return attainable from my portfolio" comprisethe subgroupwhich expressedthe greatest willingnessto take Table 16 Investor Risk Preferencesand Investment Behavior Analysis) (Cross-Classification A. Association with Expressed Risk-taking Desire
Aspect of Investment Behavior Direction Significance*
incidenceof use of: Expressed ............................... a) Marginpurchases .............................. b) Put or call options c) Shortsales..................................... ........... d) Warrants ............ Percentageof the portfolioin incomesecurities of actualtotal transactions as percentage Margintransactions in NYSE securities.. Percentageof actual total transactions capitalgains as a portfolioobjective.. Rating of short-term ......... Rating of dividendincomeas a portfolioobjective Time spent per month on securityanalysisand portfoliode............................................ cisions
Pos. Pos. Pos. Pos. Neg. Pos. Neg. Pos. Neg. Pos.
<.0001 .0003 .0001 .0001 <.0001 <.0001 .0010 <. 0001 <.0001 .0001
B. Expressed Risk-taking Desire vs. Percentage of Actual Transactions Executed on Margin

Margin Trade Percentage Rated Intensity of Risk-taking Desires None 1-49 50-79 80 up
1= weak................... 2.................... 3.................... 4..49 .................. 5 = strong
.77 .62 .61
.06 .10 .07 .15 .12 .11 .17 .08 .14 .17 .16 .18 .30 .12 .15 .43 of independence<.0001.) (Probability
C. Expressed Risk-taking Desire vs. Percentage of Actual TransactionsExecuted in NYSE Securities

NYSE Trading Percentage Rated Intensity of Risk-taking Desires 0-49 50-69 70-84 85 up
1=weak...................
2 .............. .
.21
.19
.23
.24
.21
.24
.35
.33
3.................... 4 .................... 5 = strong..................
.25 .28 .40
.25 .27 .23 .20 .28 .24 .15 .17 .29 of independence=.0010.) (Probability
* Probability that the variables are not correlated.
324
The Journal of Business Table 17 Investor Return Expectations and Investment BeAnalysis) havior (Cross-Classifications
Association with Level of Expected Portfolio Returns Aspect of Investment Behavior Direction Significance*
Expressed intensity of risk-taking desires.Pos. Rating of short-term capital gains as a portfolio objective .. Rating of dividend income as a portfolio objective Percentage of the portfolio in income securities.Neg. Actual frequency of security transactions .Pos. Expressed belief that security prices cannot be predicted Time spent per month on security analysis and portfolio decisions.Pos.
* Probability that the variables are not correlated.
Pos. Neg. Neg.
<.0001 <.0001 < .0001 <.0001 <.0001 <.0001 <.0001
risks-a decent reflection, it would seem, of received doctrine in capital market theory. They are the individuals with the most intense emphasis on short-term capital gains, and the least on dividend income, as investment objectives. They portray themselves as having low percentages of income securitiesin their collection of assets; they show up in the file as trading much more often than their contemporaries;and, almost inevitably, they are least receptive to the notion that security prices are unpredictable. Whether or not the latter attitude is in fact merited, of course, is open to serious question, but a high degree of confidence in an ability to forecast does seem an essential emotional prerequisite to both a willingness to trade often and an optimistic view of the likely outcome. In effect, portions of the group may be deluded, but the delusions are at least internally consistent. Following them through, the positive association between portfolio return expectations and the time spent on security analysis and selection provides further evidence of an imputed payoff to diligence. Whatever our assessment of the market exigencies which may prevent the anticipated results from being achieved, the respondents as a whole by no means have an outrageousset of beliefs as to attainable yields on equity per portfolios. Thus, the global average for the sample is in the 9%o-10O% annum range which empirical evidence suggests would have been realized in the long run from a diversified assemblage of common stocks.39At the micro level within the group there is also some indication that the views held about various elements of performance and activity are fairly accurate. Table 18 provides two simple illustrations in terms of the respondents'selfevaluations of their standing. When asked about their perceived realized returns and their trading styles, those individuals who said they agreed with the proposition that "given the risk level of my portfolio, my average realized return has been lower than the market average" did in fact report else39. Fisher and Lorie.
325
where historical returns which were at the low end of the aggregate distribution; and those who felt that "my security trading frequencyis substantially less than for the average investor" were the ones whom the transactions file revealed to be the infrequent traders. Differential expressions of optimism about the future, therefore, do not appear to originate in biased appraisals of the past.
VII. VARIABLE INTERACTIONS
While the foregoing cross-classificationshave permitted us to focus on key bi- or tri-variate relationships among the important constituents of investment strategy and style, it is clear from the observed patterns that the determinants of behavior have ratherbroad interconnections.The multidimensional nature of the process has been manifest in a variety of implicit forms, but it deserves additional explicit attention by way of summarizing our findings. The AID analysis alluded to earlier provides an especially convenient vehicle for both executing and displaying such an overview. The AID algorithm was developed specifically for use in situations wherein a solid a priori model to explain the response of a given dependent variable is not readily available,40 where there is some reason to believe that Table 18 Elements of Investor Self-Appraisal (Cross-Classification Analysis) A. Assessment of Relative Level of Realized Past Returns vs. Reported Absolute Level of Returns
Reported Absolute Level of Annual Percentage Return (%) View of Relative Return Level Loss 0-5 6-10 11-15 Over 15
Well above average ......... ....... Above average .................... Average .......................... Below average ..................... .19 Well below average ......... .......
.02 .05 .09 .31
.06 .12 .23 .27 .23
.23 .44 .46 .34 .20
.34 .31 .15 .13 .12
.35 .08 .07 .07 .14
B. Assessment of Relative Trading Frequency vs. Actual Frequency of Transactions

Actual Transactions per Year View of Relative Trading Frequency 5 or less 6-10 Over 10
Well above average..22 Above average ..26 .. Average ..... Below average ..51 Well below average..67
................
.42
.18 .33 .28 .30 .20
.60 .41 .30 .19 .13
NoTE.-Probability of independence < .0001 in both cases.
40. Sonquist; Sonquist et al.
326
the impacts of the possible candidate independent variables are not uniform acrossall segments of the population being sampled, wherea number of those proposed variables are neither ordinal nor continuous, and where the assumptions of additivity and linearity in the underlying influences may well not be appropriate. Survey research efforts of the sort at issue here, which deal with individual behavior and attributes, often embody all these potential difficulties. In the procedure, the basic principle of least squares is followed, in that the emphasis is on an ability to reduce error.The question is, throughout, "What dichotomous split on which single candidate independent variable will yield maximum improvement in the capacity to predict values of the dependent variable?" It utilizes, in essence, a sequential one-way analysis-of-variance technique such that the sample is split at each stage into two nonoverlapping subgroups that provide the greatest reduction in the unexplained sum of squares remainingfrom the previous stage. There is no stipulation that the splits be symmetricalat every stage or that they produce subgroups of equal size; rather, the progressive breakdowns depend entirely on cumulative self-contained contributions to explanatory power within each "branch" of the unfolding array. Data sets of approximately 1,000 are needed for meaningful application-a test our sample just meets. The process terminates when the subgroups involved diminish to a prespecified size or the extra reduction in unexplainedsum of squares from the best available additional new split falls below a prespecifiedlevel.41 The result is a series of partitions of the sample that indicate which independent variables have the most powerful influences, and in which order. Clearly visible in the emergingdisplay, therefore,is a useful ranking of the relevant impacts as well as a map of their interactions. A variety of AID runs were made in the investigation as precursorsto the cross-classificationanalyses, and those findings guided in large part our selection of particular relationships to explore in detail. For present purposes, the profiles of three of those runs should suffice to tie the threads of the investment behavior story together. They treat, as dependent variables, (1) the percentage of the individual investor's portfolio he reports as committed to "income" securities; (2) the fraction of his actual total transactions over the 7-year study interval which appear in the file as "solicited" trades; and (3) the average annual return he believes is attainable from his portfolio. The first of these is an effective proxy for basic investment objectives and philosophy, given its documented high degree of association with dividend goal ratings (positive), short-term capital gains emphasis (negative), and expressed attitudes toward risk taking (negative). The second encapsulates the essence of differencesin security-analytic and decision41. We established these criteria to be (a) a minimum subgroup of 25, and (b) an improvement in the total R2 of .004 from a new split. Both are somewhat arbitrary and contain trappings of art as much as of science.
327
making styles within the sample. And the third is a central element in the investor's evaluation of his surrounding market environment and opportunities. Figures 1-3 convey the findings. Within each of the arrays, successive splits on the independent variables are plotted from left to right. With regardto the income-securitycomponent of the portfolio (fig. 1), we see-in harmony with our previous discussions-that the most powerful influence on the allocation decision turns out to be the investor's age. The mean for the full sample is 41%0, but the best single basis of prediction for a particularindividual is the informationas to whether or not he has reached his fifty-fifth birthday.42 Investors of that age or older have 51%oof their equity investments devoted to instruments chosen primarily for their dividend-generating features, while the below-55 contingent reports a corresponding mean of just 28%0. Further, within both groups, the next best predictor of the individual observations is also age-a breakdownaccording to that variable providing, on the second round, again the greatest reduction in the unexplainedvarianceleft over from the initial division. In the resulting four-way split, the income-security percentages are seen to rise steadily with age. Beyond that point, the splits become asymmetric. Successive searches for predictor variables begin to bring in additional elements of personal circumstances and then of differences in characteristic investment styles. Thus, for individuals who are 65 or older, family size has an effect on strategy. Single investors in that bracket seek income more heavily than do persons whose families still contain at least one other member. This is, in some respects,counter to what we might anticipate at lower ages and is most likely a pension and/or social security phenomenon-that is, if there is a spouse who is either drawing federal benefits or has an additional private pension from previous employment, the relative current investment-income need of the combined household is reduced.43 Within the group having families, those who are employed are, reasonably, less concernedwith investment income than those who are not." In both the 45-54 and 55-64 subsamples female investors concentrate more on income securities than do their male counterparts. One suspects that this also is as much an income-relatedas a sex-related response, however, given that the majority of the female investors involved are unemployed.45For males of both age brackets subsequent discriminations along
42. I.e., there is no other two-way division of the sample along any dimension of investor personal circumstances that would produce groups having as low a total of withingroup sum-of-squares of deviations of the dependent variable. 43. Or, alternatively, the spouse may be younger than 65 and thereby still actively employed. 44. The fact that income level does not show up overtly here as a predictor variable is almost certainly accounted for by other personal-situation attributes (e.g., employment status) acting as proxies-and providing cleaner two-way distinctions to which the AID algorithm's variance analysis is more receptive. 45. And, again, the AID procedure apparently found sex a more congenial variable on which to split the sample.
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the lines of investment approaches contain some additional modest predictive content. The "fundamental"analysts, and those who spend very little time each month on managing their portfolios, appear to gravitate toward income securities. Evidence that no such distinctions are helpful in connection with females fits the observation that female investors display considerable uniformity in modes of decision and analysis across the sample. Finally, in the below-45 age category, well-diversifiedinvestors of both sexes are the ones whose portfolios are directed most intensively toward dividend returns, a joint reflection no doubt of associated personal-riskpreferences. Further efforts at subdividing the various groups failed to meet imposed minimum standards of incrementalpredictive power, and all were therefore terminated as shown. The resulting R2 of .223 confirms the inherent difficulty in attempting to explain a large fraction of individual behavior differences with socioeconomicattributes, but the indicated profile does provide a coherent identification of the hierarchy of major factors at work, as well as the successively finer segmentations which occur within the broad groupings. All appear consistent with the messages from the cross-classification analyses. A similar assessment applies to the interactions depicted in figure 2where the dependent variable is what we have termed "solicited" transactions volume, defined over the 7-year study interval immediately preceding our questionnaire mailing. Aggregate explanatory performance in this instance is still more modest, as might be anticipated from both our previous expressionsof concernabout the rigorof the account executives' designations of the trades and the sense from the cross-classificationsthat the details of the individual decision-makingprocess have a more substantial stochastic flavor than do either the underlying objectives or the eventual portfolios assembled. The smaller number of successful partitions recorded attest to these phenomena.Nonetheless, the distinctions which are made buttress the earlier findings and suggest some additional patterns that have logical appeal. The most potent influence on behavior is once again age. Deviations from the full-sample mean of 31% (i.e., approximately a third of the total trades observed were in apparent response to account executive advice) are best explained by dividing the survey participants first into above-andbelow-age-45 subsets. The older group, as the respective means indicate, relies on advice less as it progressively internalizes the security selection function; we had previous evidence of such a reaction. Within that group, the most pronouncedfurther variations in style are associated with the respondent's sex. Females are more broker reliant, depending on them to almost exactly the same extent as the combined 44-and-underpopulation. In effect, male and female investors seem to start out with about the same sort of relationships with their brokers, but the males modify that relationship over time while the women persist. Subsequently for males, individual income circumstanceshave a mild impact, the most plausible explanation per-
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haps being that the upper-incomesegment is sufficiently preoccupied with professional activities that substantial time and energy cannot be devoted to portfolio self-management.The rationale for the education and occupation influencesdetected for females is more transparent;presumably,greater education should enhance analytical prowess and encourage a more independent decision mode, as should the exposureto the demands of commercial life on the part of females who are not exclusively housewives. The latter effects, however, are very much of second-and-third-order importance. The final graph (fig. 3) disaggregatesthe sample along the lines of the attributes which appear to account for differencesin the returns the various individuals indicate they expect to realize from their equity investments. In descending order of impact, the key factors are age, time devoted to analysis, and sex. Finer distinctions thereafter involve particular portfolio characteristics. Thus, the older the investor and the less time committed each month to security selection, the less sanguine the view of likely outcomes.46Females in this category seem especially skeptical. The most optimistic market participant is one who is below age 55, engages in more than 3 hours of research and analysis every month,47does not own any mutual funds, and spends more than $50 annually gathering information to help make decisions. The pursuit of high returns for at least a portion of the several groups also coincides with a strategy of exploiting the possibilities of margin transactions and of concentrating on a relatively smaller number of securities than comprise the portfolios of their contemporaries.Intimations, therefore,of a learningphenomenonwith age, of familiarpatterns of risk/return trade-offs,and of a faith in the virtues of diligent attention to security analysis are discernible. Whether or not one agrees with the premises on which such views are based, they do in fact seem to guide behavior-and we shall be content if the evidence we have sought to portray here can lead to some improved understandingof the processes at work more generally in the capital markets.
46. Causation, of course, could well run in the other direction, i.e., certain individuals may downplay analysis because they do not feel the potential rewards from incremental effort justify the undertaking. 47. Which may not sound like very much time, until judged by the observation that half the sample reports spending five or fewer hours monthly on such activities.
APPENDIX
TableAl Aspects of Investment Behavior: Selected Regressions on Investor Demographic Attributes

Independent Variable Regression Coefficient Standard Error F
A. Dependent Variable=Rating of Short-Term Capital Gains as a Portfolio Objective (R2= .1 15; Overall F= 13.896**)
1. Investor age...................
0.0224
0.0034
44.799**
B. Dependent Variable =Rating of Dividend Income as a Portfolio Objective (R2=.297; Overall F=45.202**)
1. Investor age................... . 2. Incomeevel ...................l
0.0255 0.0029
0.0032 0.0009
65.433** 9.748**
C. Dependent Variable= Annual Percentage Return Thought Attainable from an Equity Securities Portfolio (R2=.091; Overall F=9.668**)
1. Investor age................... 2. Sex (M=1; F=0) ..............
0.1261 1.0103
0.0194 0.5117
42.166** 3.898*
D. Dependent Variable =Money Spent Annually Gathering Investment Information (R2=.145; Overall F=16.317**)
1. 2. 3. 4.
. Incomeevel ...................l Sex (M=1; F=0) .............. Investor age ................... Education level ................
1.2125 29.9674 0.9043 2.7152
0.1076 9.6926 0.3677 1.1254
127.009** 9.559** 6.048* 5.820*
E. Dependent Variable=Percentage of Equity Portfolio in Securities Chosen Primarily to Provide Dividend Income (R2=.201; Overall
F=24.187**)
1. Investor age................... 2. Employment (1 = employed)
.....
0.6626 -13.2628
0.0936 4.6225
50.053** 8.232**
NOTE.-All variablesare categorical,and are representedby dummy variables in the regressionequa. tions. Hence, the magnitudesof the indicated coefficientsare arbitrary;only their signs and their significance are of concern for interpretive purposes. Only those independent variables which were significant at the .01 or .05 level are listed. * Significantat .05 level. ** Significantat .01 level.

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Patterns of Investment Strategy and Behavior Among Individual Investors Author(s): Wilbur G. Lewellen, Ronald C.

The Journal of Business

The Journal of Business

The Journal of Business

The Journal of Business

Under 45 ....... . 45-54 .......... . 55-64 .......... . 65 and over..

Under 45 ....... . 45-54 .......... . 55-64 .......... . 65 and over .

28 .32 48 .30 71 .17 .72 .18 (Probability of

A. Age vs Dividend Goal Importance

B. Income vs. Dividend Goal Importance

Investor family income (: Under 15, 000. 15,000-24,999. . 25,000-49,999. . 50XO0 up

.10 .18 .19 22

.22 .28 .28 .46

.22 .27 .27 .20

.46 .27 .26 .12

C. Age vs. Dividend Goal Importance, by Income Bracket

.33 .47 .21 .13

.17 .15 .30 .21

.21 .18 .39 .62

.30 .14 .04

.43 .36 .26 .12

.18 .26 .32 .25

.08 .08 .28 .59

.27 .08 .08

.31 .33 .24 .21

.23 .29 .30 .24

.10 .11 .38 .48

.43 .46 .43 .54

.11 .19 .22 .27

.03 .05 .28 .15

NOTE.-Probability of independence<.0001 in all cases.

The Journal of Business

Under45 .......... 45-54 ............. 55-64............. 65 and over........

.10 .11 .23 .29

.35 .47 .55 .54

.35 .25 .14 .11

.20 .17 .08 .06

11.3 10.3 8.1 7.4

Under45 . 45-54 55-64 65 and over.33

.18 .18 .24 .26

.17 .17 .12 .17

.27 .28 .23 .15

.18 .17 .12 .09

NOTE.-Probability of independence = .0021.

The Journal of Business

Investor Age (Years)

B. Rating of Value of Investment Information, by Sex

Males ................... Females .................

E. Frequency of Multiple Broker Accounts, by Income Level and Sex

The Journal of Business

A. Trading Frequency, by Sex

Male investors .............. Female investors ............. .

.27 .24 .49 .19 .25 56 (Probability of independence= .0881.)

Family income, male inves-

The Journal of Business

A. Margin Use by Age Bracket

Family size (N): 1.................... 2 .................... 3 .................... 4 .................... 5 or more ................

.34 .20 .40 .06 (Probability of independence<.0001.)

33. A conclusion confirmed by the analysis in Cohn et al.

The Journal of Business

A. Common Stock Percentage vs. Age

.30 .29 .29 .17

.22 .22 .31 .27

127.009 9.559 6.048* 5.820*