Higher IQ is associated with higher stock market participation

That’s the finding of a new Journal of Finance paper. From the abstract:

Stock market participation is monotonically related to IQ, controlling for wealth, income, age, and other demographic and occupational information. The high correlation between IQ and participation exists even among the affluent. Supplemental data from siblings, studied with an instrumental variables approach and regressions that control for family effects, demonstrate that IQ’s influence on participation extends to females and does not arise from omitted familial and nonfamilial variables. High-IQ investors are more likely to hold mutual funds and larger numbers of stocks, experience lower risk, and earn higher Sharpe ratios. We discuss implications for policy and finance research.

It’s not surprisingly that individuals with a high intelligence invest more – stock-market investments are good bets on how to grow your wealth over time. However, be careful to conclude that because smart people do it, everyone should. Odds are there is some level of competence involved in how they invest, which might make investing a less beneficial action for those who are less savvy. It’s very easy to trade poorly.

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