Abstract

http://ssrn.com/abstract=2122652
 
 

References (121)



 
 

Citations (1)



 
 

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Do Individual Investors Learn from Their Mistakes?


Steffen Meyer


Goethe University Frankfurt - Department of Finance

Maximilian Koestner


Goethe University Frankfurt - Department of Finance

Andreas Hackethal


Goethe University Frankfurt - Department of Finance

August 2, 2012


Abstract:     
Based on recent empirical evidence which suggests that as investors gain experience, their investment performance improves, we hypothesize that the specific mechanism through which experience translates to better investment returns is closely related to learning from investment mistakes. To test our hypotheses, we use an administrative dataset which covers the trading history of 19,487 individual investors. Our results show that underdiversification and the disposition effect do not decline as investors gain experience. However, we find that experience correlates with less portfolio turnover, suggesting that investors learn from overconfidence. We conclude that compared to other investment mistakes, it is relatively easy for individuals to identify and avoid costs related to excessive trading activity. When correlating experience with portfolio returns, we find that as investors gain experience, their portfolio returns improve. A comparison of returns before and after accounting for transaction costs reveals that this effect is indeed related to learning from overconfidence.

Number of Pages in PDF File: 35

Keywords: Investor Learning, Investment Mistakes, Household Finance

JEL Classification: D03, D14, G11

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Date posted: August 2, 2012  

Suggested Citation

Meyer, Steffen and Koestner, Maximilian and Hackethal, Andreas, Do Individual Investors Learn from Their Mistakes? (August 2, 2012). Available at SSRN: http://ssrn.com/abstract=2122652 or http://dx.doi.org/10.2139/ssrn.2122652

Contact Information

Steffen Meyer (Contact Author)
Goethe University Frankfurt - Department of Finance ( email )
Grüneburgplatz 1
Frankfurt am Main, DE 60323
Germany
Maximilian Koestner
Goethe University Frankfurt - Department of Finance ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
Andreas Hackethal
Goethe University Frankfurt - Department of Finance ( email )
House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany
+49 69 79833700 (Phone)
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References:  121
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