We survey thousands of affluent American investors to examine the relationship between personalities and investment decisions. The Big Five personality traits correlate with investors' beliefs about the stock market and economy, risk preferences, and social interaction tendencies. Two personality traits, Neuroticism and Openness, stand out in their explanatory power for equity investments. Investors with high Neuroticism and those with low Openness tend to allocate less investment to equities. We examine the underlying mechanisms and find evidence for both standard channels of preferences and beliefs and other nonstandard channels. We show consistent out-of-sample evidence in representative panels of Australian and German households.

Stock market trading restrictions affect prices and liquidity directly through constraints on investors' transactions and indirectly by altering the information environment. We isolate this indirect effect by analyzing how stock market restrictions affect corporate bond yields. Exploiting the staggered reductions of trading restrictions in the Chinese stock market as a quasi-natural experiment, we document that the easing of trading restrictions on a firm's stock decreases its corporate bond spreads. This effect is stronger for firms with less transparency or lower credit ratings. Our evidence suggests that the effect is likely due to improved stock price informativeness.

We analyze two insider-trading regulations recently introduced by the Securities and Exchange Commission: mandatory disclosure and “cooling-off period”. The former requires insiders disclose trading plans at adoption, while the latter mandates a delay period before trading. These policies affect investors’ trading profits, risk sharing, and hence their welfare. If the insider has sufficiently large hedging needs, in contrast to the conventional wisdom from “sunshine trading”, disclosure reduces the welfare of all investors. In our calibration, a longer cooling-off period benefits speculators, and its implications for the insider and hedgers depend on whether the disclosure policy is already in place.

Abstract We analyze a model in which an anomaly is unknown to arbitrageurs until its discovery, and test the model implications on both asset prices and arbitrageurs’ trading activities. Using data on 99 anomalies documented in the existing literature, we find that the discovery of an anomaly reduces the correlation between the returns of its decile-1 and decile-10 portfolios. This discovery effect is stronger if the aggregate wealth of hedge funds is more volatile. Finally, hedge funds increase (reverse) their positions in exploiting anomalies when their aggregate wealth increases (decreases), further suggesting that these discovery effects operate through arbitrage trading.