Walk into any investment club, and you’ll find passionate debates about value versus growth stocks. Value investors hunt for unloved companies trading below what their fundamentals suggest they’re worth. Growth investors chase companies with soaring prices and bright prospects. For decades, economists have puzzled over why different people gravitate toward such different approaches, even when looking at the same market data.
A new investigation published in the Journal of Behavioral and Experimental Finance suggests the answer may lie partly in who you are as a person. The study reports that personality traits are linked to stock-picking preferences, and that two psychological bridges, financial confidence and flexible thinking, help explain the connection.
The question behind the research
Fawad Ahmad of Lund University School of Economics and Management, who also holds a position at the Institute of Business Administration in Karachi, wanted to address a gap in the behavioral finance literature. Previous work has connected personality to general risk-taking and to how much of a portfolio people allocate to stocks, but relatively little has examined the specific choice between value and growth strategies.
Ahmad also wanted to look beyond direct links and examine the psychological machinery that might connect personality to stock choice. Two candidates stood out. The first, financial self-efficacy, is a person’s belief that they can handle money-related tasks and reach their financial goals. The second, what researchers call a versatile cognitive style, is the ability to switch between gut-feel intuitive thinking and slow, analytical reasoning depending on the situation.
The framework Ahmad used is the Big Five personality model, which psychologists commonly rely on to describe stable individual differences. The five traits are extraversion (outgoing, reward-seeking), conscientiousness (disciplined, detail-oriented), openness to experience (curious, imaginative), neuroticism (emotionally reactive, anxiety-prone), and agreeableness (cooperative, trusting).
How the study was conducted
Ahmad recruited 351 undergraduate and graduate students from two universities: LUISS Guido Carli University in Italy and the Institute of Business Administration in Karachi, Pakistan. Running the study across two culturally distinct countries was a deliberate choice intended to generate more variation in personality and thinking styles. About 60 percent of participants reported some stock market experience, with an average of two years.
Participants filled out standardized questionnaires measuring the Big Five traits, their financial self-efficacy, and their tendencies toward both intuitive and analytical thinking. Then came the core task: a series of stock-selection exercises designed to reveal whether they leaned toward value or growth picks.
Each exercise described two hypothetical companies. The first piece of information given was a value-to-market ratio, designed to trigger a quick, intuitive response. The second piece of information provided fundamentals such as current ratio, return on assets, debt levels, and asset turnover, along with expected returns and volatility. In the versions of the task the researcher focused on, the two pieces of information pointed in opposite directions. Intuition would steer a participant toward the growth stock, but a sober look at the fundamentals would suggest the value stock was the better pick. Across four such conflicting scenarios, participants who consistently picked the value stock were classified as value-leaning, while those who went the other way were classified as growth-leaning.
What the data showed
The pattern in the results was consistent. People who scored higher on conscientiousness and openness to experience were more likely to pick value stocks. People who scored higher on extraversion and neuroticism leaned toward growth stocks. Agreeableness, interestingly, showed no significant link to either preference.
Ahmad interprets these patterns through the personalities themselves. Conscientious people, he writes, tend to do more thorough information searches and resist the pull of quick gains, which fits with identifying undervalued companies and waiting for prices to correct. Open individuals like to explore ideas others overlook, which aligns with value investing’s contrarian flavor.
On the other side, extraverts tend to seek immediate rewards and ride positive momentum, behaviors that map onto chasing growth stocks with rising prices. People high in neuroticism tend to react strongly to negative information and prefer what feels safe. Ahmad argues that in the current market environment, growth stocks often appear low-risk and exciting, while value stocks can feel tainted by bad news, making neurotic investors more likely to avoid them.
Notably, the results looked essentially the same for Italian and Pakistani participants. The personality-to-stock-pick links did not vary meaningfully by country.
The role of confidence and flexible thinking
The second half of the study examined how personality might translate into stock choice through the two intermediate factors. Ahmad’s analysis traced a chain: certain personality traits predicted higher or lower financial self-efficacy, which in turn predicted the ability to shift flexibly between intuitive and analytical thinking, which in turn predicted stock preference.
Conscientiousness and openness were linked to higher financial self-efficacy, which was linked to greater cognitive flexibility, which was linked to picking value stocks. Extraversion and neuroticism ran the opposite way: they were linked to lower financial self-efficacy and less cognitive flexibility, which was linked to picking growth stocks.
The interpretation Ahmad offers is that financial confidence helps people override their initial gut reaction. The value stocks in the task looked less appealing at first glance; only someone willing to slow down and analyze the underlying fundamentals would pick them. That willingness appeared to be nurtured by both stable personality traits and confidence in one’s financial abilities.
Practical takeaways and limitations
Ahmad suggests that financial advisors can use these patterns to tailor their communication. A neurotic client focused on avoiding losses might benefit from having the downside risks of overvalued growth stocks made explicit, alongside the positive fundamental information about value stocks. An extraverted client drawn to immediate returns might respond to reframing around longer-term horizons. Investment firms, the author adds, could factor personality profiles into how they recruit and train professional investors.
Several caveats apply. The study relied on self-reported personality measures and hypothetical stock-selection tasks rather than real trading decisions. All the measures were collected at the same time, which makes it difficult to establish the direction of causation. The sample consisted of university students, and while many had some stock market experience, their behavior may not mirror that of seasoned professional investors. Cultural differences beyond the two countries sampled could also influence how these relationships play out elsewhere.
Ahmad suggests that future research could follow participants over time, use real trading environments, or combine survey data with techniques like eye tracking to see how investors actually process information when making choices between value and growth stocks.
