New research shows day traders suffer before a divorce

On Behalf of | Aug 10, 2021 | Family Law

Most of us instinctively know that divorce can affect every aspect of our lives. After all, it is the process of taking one life and splitting it into to entirely separate lives. It separates kids, divides bank and retirement accounts, can force the sell of the family home, etc. And, it turns out that, according to new research, the lead up to a divorce can negatively affect day trading success.

The research paper

The research paper is entitled, “Retail Trading Activity and Major Lifecycle Events: The Case of Divorce.” It is co-authored by several university professors from the University of Sydney Business School, La Trobe Business School, University of California, Los Angeles, and the University of Sydney Business School. In sum, the researchers found that day traders (those traders that trade stocks every day), had worse results during the run-up to a divorce then prior to the divorce announcement. Though, the researchers found that after the divorce settlement is finalize, the day trading profits returned to normal.

Years of impact

What may have been surprising though is that the “run-up” time for a divorce can last years, where individual day traders saw their investment performance drop, often, sharply. Prior to this run-up period, these same day traders earned superior returns.

Part of ongoing findings

This research comes on the heels of another research study by the Journal of Financial Economics that came out in March of 2016. This study found that hedge-fund managers going through a divorce underperformed their industry counterparts that were not going through a divorce. That study also found that their performance returned to normal after the divorce concluded.

The key takeaways

For our Rockwall, Texas, readers thinking about a divorce, especially those that are day traders, these studies show that a bad marriage, or at least, a marriage in turmoil can have a huge affect on day trading returns. And, while many fear the financial impact one will take from a divorce, the studies show that staying in the divorce can also have a financial impact that can be alleviated by a divorce.

 

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