Does trading improve individual investor performance?

Pei Gi Shu*, Shean Bii Chiu, Hsuan Chi Chen, Yin-Hua Yeh

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

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.

Original languageEnglish
Pages (from-to)199-217
Number of pages19
JournalReview of Quantitative Finance and Accounting
Volume22
Issue number3
DOIs
StatePublished - 1 May 2004

Keywords

  • Individual investor
  • Overconfidence

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