Do Individual Investors Learn from Their Trading Experience?
Northern Illinois University
University of Colorado at Boulder
China Academy of Financial Research (CAFR); Yale School of Management; University of California, Davis - Graduate School of Management
Yale ICF Working Paper No. 03-32
This paper investigates whether individual investors adjust their stock trading according to their stock selection abilities, which can be inferred from their trading history. Fixed-effect panel regressions provide strong evidence that the ability to forecast future stock returns significantly affects investors' trading activity: investors purchase more actively if they are more likely to have stock selection ability. Furthermore, trading experience - measured by the number of purchases, the number of different stocks purchased, and the variance of purchase dollar amounts - significantly helps improve investors' portfolio performance. In addition, we find that learning behavior varies across investors, which corroborates the heterogeneity of individual investors.
Number of Pages in PDF File: 28
Keywords: individual investors, learning, rationality, trading
JEL Classification: D19, G14working papers series
Date posted: November 15, 2003
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