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Do Individual Investors Learn from Their Trading Experience?

Gina Nicolosi
Northern Illinois University

Liang Peng
University of Colorado at Boulder

Ning Zhu
University of California, Davis - Graduate School of Management; Yale School of Management; China Academy of Financial Research (CAFR)

March 2004

Yale ICF Working Paper No. 03-32

Abstract:
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.

Keywords: individual investors, learning, rationality, trading

JEL Classifications: D19, G14

Working Paper Series

Date posted: November 15, 2003 ; Last revised: September 21, 2009

Suggested Citation

Nicolosi, Gina, Peng , Liang and Zhu, Ning, Do Individual Investors Learn from Their Trading Experience? (March 2004). Yale ICF Working Paper No. 03-32. Available at SSRN: http://ssrn.com/abstract=468720 or doi:10.2139/ssrn.468720

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Contact Information

Liang Peng (Contact Author) University of Colorado at Boulder ( email ) 419 UCB Boulder, CO 80309-419 United States 303-492-8215 (Phone) 303-492-5962 (Fax) HOME PAGE: http://leeds-faculty.colorado.edu/pengl/
Gina Nicolosi Northern Illinois University ( email ) Department of Finance Barsema Hall DeKalb, IL 60115 United States 815-753-6391 (Phone)
Ning Zhu University of California, Davis - Graduate School of Management ( email ) One Shields Avenue Davis, CA 95616 United States 530-752-3871 (Phone) 530-752-2924 (Fax) HOME PAGE: http://www.gsm.ucdavis.edu/Faculty/Zhu/
Yale School of Management ( email ) 135 Prospect Street Box 208200 New Haven, CT 06520-8200 United States HOME PAGE: http://pantheon.yale.edu/~nz26/
China Academy of Financial Research (CAFR) 1954 Huashan Road Shanghai P.R.China, 200030 China