Review of Quantitative Finance and Accounting, 22: 199–217, 2004
2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
Does Trading Improve Individual Investor Performance?
Associate Professor, Department of Business Administration, Fu-Jen Catholic University, Taipei 242, Taiwan
Tel.: 886-2-29031111, ext. 2740, Fax: 886-2-29089219
Professor, Department of Finance, National Taiwan University, Taipei 106, Taiwan
Associate Professor, Department of Finance, Yuan Ze University, Chung-Li 320, Taiwan
Professor, Department of International Trade and Finance, Fu-Jen Catholic University, Taipei 242, Taiwan
Abstract. From 52,649 accounts and 10,615,117 transaction records obtained from a renowned brokerage house
in Taiwan we ﬁnd that individual investors purchase 73.4% and sell 64.5% of their stock portfolios each month.
This is more than ten times the statistics for their U.S. counterparts. In general, individual investors have positive
abnormal returns from factor-based models. However, they would have earned higher returns from following
abuy-and-hold strategy. We ﬁnd a U-shaped rather than a monotonic turnover and performance relation. The
results do not support the overconﬁdence argument proposed by Barber and Odean (2000, 2001) nor does the
rational model of Grossman and Stiglitz (1980). We ﬁnd that investors with large portfolio values tend to be
informed traders whose excess trading does create performance value. We also investigate whether men are more
overconﬁdent than women and ﬁnd that even though men trade more excessively than women, men’s performance
measures are not dramatically lower than women’s. Speciﬁcally, the own-benchmark adjusted gross return for
men is higher than that for women. The regression results indicate that electronic traders rather than men are
Keywords: overconﬁdence, individual investor
JEL Classiﬁcation: G11, G14
A thread of research has recently focused on individual investor overconﬁdence in ex-
cess trading to an extent hazardous to wealth. The pioneering study of Barber and Odean
(2000) illustrates that the average household earns an annual return of 16.4%, 1.5% lower
than the market return. Excessive trading deprives even more wealth. Investors in the top
turnover quintile earn an even lower annual return of 11.4%. Another work by Barber and
Odean (2001) connecting overconﬁdence to investor gender illustrates that men are more
Address correspondence to: Pei-Gi Shu, Department of Business Administration, Fu-Jen Catholic University,
242, Hsin-Chuang, Taipei, Taiwan.