Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors
Brad M. Barber
University of California, Davis
Terrance Odean
University of California, Berkeley - Haas School of Business
Journal of Finance, Vol. 55, Issue 2, April 2000
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 traded most earned an annual return of 11.4 percent, while the market returned 17.9 percent. The average household earned an annual return of 16.4 percent, tilted its common stock investment toward high-beta, small, value stocks, and turned 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.
JEL Classification: G00, G12, G14
Accepted Paper Series
Suggested Citation
Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Journal of Finance, Vol. 55, Issue 2, April 2000. Available at SSRN: http://ssrn.com/abstract=219830
