Actively trading securities in the run-up to a divorce can be detrimental to an individual investor’s wealth, a draft research report finds.
The paper adds to research showing how major life events can affect the investment performance of both individual and professional investors.
In the years before a divorce, individual investors who trade actively saw their investment performance drop sharply, says Avanidhar Subrahmanyam, professor of finance at UCLA Anderson School of Management and one of the report’s authors. That was particularly notable because well before that time, those same investors were earning superior returns, the paper found.
“The impending divorce has a negative impact,” says Prof. Subrahmanyam, whose co-authors included Andrew Grant and P. Joakim Westerholm, both of the University of Sydney, and Petko Kalev at La Trobe University, Australia.
The findings are similar to research published in March 2016 in the Journal of Financial Economics, which found significant underperformance among hedge-fund managers going through divorces.