Abstract The paper assesses how intelligence, education, and learning affect the disposition effect using our exhaustive NASDAQ OMX Tallinn dataset. We employ survival analysis to show that higher intelligence and stronger learning abilities as measured by education level and the type of education lessen the disposition effect. More highly educated and intelligent investors also learn faster by trading. We find that mathematical abilities are beneficial for overcoming the disposition effect and propose that learning ability is one of the most important components of intelligence in affecting the disposition effect.

The paper assesses how cognitive abilities and education affect the performance of individual investors in the stock market. We use an exhaustive NASDAQ Tallinn dataset covering two bull markets and one bear market. We show that stronger mathematical and overall academic abilities are associated with more profitable investments and relative outperformance, after trading style, income, experience and a variety of educational characteristics are controlled for. However, the effects are not always linear or monotonic. A similar positive effect on performance is produced by higher education or specialisation in certain subjects. None of these factors is able to explain the performance of investors during bear markets, and none is a substitute for experience. Investors with strong academic abilities tend to have moderate trading frequency and performance seems to be affected more by the ability to find good trades than by the use of any particular trading strategies.