Preface

In this study, we evaluate associations between an investor’s “emotional intelligence”

and the investor’s investment decisions. Emotional intelligence is a psychological

characteristic that describes how effectively an individual identifies, understands,

and regulates emotions and then uses them in problem solving and decision making.

Based on data from an online survey of Vanguard Group investors, together with

transactional and account balance records from Vanguard, we show that emotional

intelligence and other psychological characteristics have noteworthy relationships

with various aspects of financial decision making, including the frequency of

transactional activity, the decision to invest in stocks, and the use of actively

managed mutual funds and index funds.

After we review the important psychological concepts used in the study, we

describe our sampling methodology, our data, and the empirical methodology we

used. We then present our analysis of the results. In the concluding section, we also

discuss possible avenues for further research. In Appendices A and B, we include

some additional details on the raw test scores and the complete results from our

statistical analysis of equity shares. Additional regression results, as well as an image

of the invitation letter sent to survey participants, are available in our online

supplemental materials at www.cfapubs.org. These details were omitted from the

body of the paper to maintain our focus on the key issues at hand.

Our findings suggest that these psychological variables have a significant

impact on investment outcomes. They also suggest that an important role for

advisers and other financial intermediaries may be to ensure that their clients are

aware of the roles (constructive and destructive) that personality and emotional

intelligence can play in financial decision making.

We would like to thank the following people and institutions for help in this

research project: Significant research assistance was provided by Karin Peterson

Labarge and Liqian Ren of Vanguard. The Research Foundation of CFA Institute

graciously provided financial support for the research. And Multi-Health Systems

assisted in the design and administration of the survey instrument used to collect

data and for making the MSCEIT (Mayer–Salovey–Caruso Emotional Intelligence

Test) instrument available for this research. We would also like to thank Charles

Ellis for initially suggesting a research collaboration between the authors and

institutions involved in this project.

In this study, we evaluate associations between an investor’s “emotional intelligence”

and the investor’s investment decisions. Emotional intelligence is a psychological

characteristic that describes how effectively an individual identifies, understands,

and regulates emotions and then uses them in problem solving and decision making.

Based on data from an online survey of Vanguard Group investors, together with

transactional and account balance records from Vanguard, we show that emotional

intelligence and other psychological characteristics have noteworthy relationships

with various aspects of financial decision making, including the frequency of

transactional activity, the decision to invest in stocks, and the use of actively

managed mutual funds and index funds.

After we review the important psychological concepts used in the study, we

describe our sampling methodology, our data, and the empirical methodology we

used. We then present our analysis of the results. In the concluding section, we also

discuss possible avenues for further research. In Appendices A and B, we include

some additional details on the raw test scores and the complete results from our

statistical analysis of equity shares. Additional regression results, as well as an image

of the invitation letter sent to survey participants, are available in our online

supplemental materials at www.cfapubs.org. These details were omitted from the

body of the paper to maintain our focus on the key issues at hand.

Our findings suggest that these psychological variables have a significant

impact on investment outcomes. They also suggest that an important role for

advisers and other financial intermediaries may be to ensure that their clients are

aware of the roles (constructive and destructive) that personality and emotional

intelligence can play in financial decision making.

We would like to thank the following people and institutions for help in this

research project: Significant research assistance was provided by Karin Peterson

Labarge and Liqian Ren of Vanguard. The Research Foundation of CFA Institute

graciously provided financial support for the research. And Multi-Health Systems

assisted in the design and administration of the survey instrument used to collect

data and for making the MSCEIT (Mayer–Salovey–Caruso Emotional Intelligence

Test) instrument available for this research. We would also like to thank Charles

Ellis for initially suggesting a research collaboration between the authors and

institutions involved in this project.