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Does Trading Improve Individual Investor Performance?

Does Trading Improve Individual Investor Performance? 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 a buy-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 overconfident. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Does Trading Improve Individual Investor Performance?

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References (29)

Publisher
Springer Journals
Copyright
Copyright © 2004 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
DOI
10.1023/B:REQU.0000025760.91840.8d
Publisher site
See Article on Publisher Site

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 a buy-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 overconfident.

Journal

Review of Quantitative Finance and Accounting – Springer Journals

Published: Oct 2, 2004

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