DRIVERS who receive more speeding tickets are likely to engage in possibly dangerous investing behaviour, according to a new study reported in The New York Times yesterday.

It found that, other things being equal, an investor's portfolio turnover rate rose 11 per cent after each additional speeding ticket he received.

That is a surprisingly strong correlation, and is highly significant from a statistical point of view, according to the researchers.

Titled "Sensation Seeking, Overconfidence and Trading Activity", the study was conducted by finance professors Mark S. Grinblatt of the University of California, Los Angeles, and Matti Keloharju from the Helsinki School of Economics.

It has been accepted for publication by The Journal of Finance.

The professors studied several databases that were made available to them. One had information on the portfolios and trading records of all Finnish households from 1995 through 2002. They did not have access to the investors' identities, but one of the databases contained details of speeding tickets issued between mid-1997 and the end of 2001 to residents of Helsinki and surrounding areas.

Professor Grinblatt said that the propensity to speed did not remain constant throughout life. As people grow older, they are likely to become more conservative drivers, and, not coincidentally, to trade less often.

But he stressed that the study had controlled factors like age, so one way to interpret their findings is that, between two people of the same age, the one who gets a speeding ticket is likely to have 11 per cent more turnover in his portfolio.

The professors' findings about over-confidence, along with results of other complex tests they conducted, led them to conclude that the correlation between speeding tickets and more frequent trading was thrill-seeking.

They found that thrill seekers - those who look for a new and risky experience just for the fun of it - trade more often not because they have an inflated belief that they can beat the market, but because they find a static portfolio too boring.

The professors found that the stocks bought by the thrill seekers fared no better, on average, than those they sold. If anything, Professor Grinblatt said, the thrill seekers were worse off, after considering transaction costs. They "cannot justify their trading in terms of their performance", he concluded.

Thus, the implication of the study is that, before one initiates any trade, it is wise to engage in some honest self-reflection about the motivations.

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