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Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors
Author(s) -
Barber Brad M.,
Odean Terrance
Publication year - 2000
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00226
Subject(s) - overconfidence effect , portfolio , stock (firearms) , business , investment performance , common stock , growth stock , financial economics , stock trading , stock market , economics , monetary economics , return on investment , market maker , microeconomics , mechanical engineering , psychology , social psychology , paleontology , context (archaeology) , horse , production (economics) , engineering , biology
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.