Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors
2000/04/01 by Brad M. Barber, Terrance Odean · 47 citations
Economics, Econometrics and Finance · Business, Management and Accounting · #Financial Markets and Investment Strategies #Financial Literacy, Pension, Retirement Analysis #Housing Market and Economics
paper · pdf · doi:10.1111/0022-1082.00226
Abstract
Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earn an annual return of 11.4 percent, while the market returns 17.9 percent. The average household earns an annual return of 16.4 percent, tilts its common stock investment toward high‐beta, small, value stocks, and turns over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.
Citations
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