Abstract

http://ssrn.com/abstract=529062
 
 

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Just How Much Do Individual Investors Lose By Trading?


Brad M. Barber


University of California, Davis

Yi-Tsung Lee


Peking University - Guanghua School of Management

Yu-Jane Liu


National Chengchi University (NCCU) - Department of Finance and Banking

Terrance Odean


University of California, Berkeley - Haas School of Business

May 2007

AFA 2006 Boston Meetings Paper
EFA 2005 Moscow Meetings Paper

Abstract:     
We document that individual investor trading results in systematic and, more importantly, economically large losses. Using a complete trading history of all investors in Taiwan, we document that the aggregate portfolio of individual investors suffers an annual performance penalty of 3.8 percentage points. Individual investor losses are equivalent to 2.2 percent of Taiwan's GDP or 2.8 percent of total personal income - nearly as much as the total private expenditure on clothing and footwear in Taiwan. Using orders underlying trade, we document that virtually all of individual trading losses can be traced to their aggressive orders; passive orders placed by individuals are profitable at short horizons and suffer modest losses at longer horizons. In contrast, institutions enjoy an annual performance boost of 1.5 percentage points (after commissions and taxes, but before other costs) and both the aggressive and passive trades of institutions are profitable. Foreign institutional investors garner nearly half of the institutional profits. Finally, the introduction of a legal lottery in Taiwan in 2002 coincided with a 25 percent reduction in turnover on the Taiwan Stock Exchange.

Number of Pages in PDF File: 30

Keywords: market efficiency, individual investors, institutional investors, information asymmetry

JEL Classification: G12, G14

working papers series





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Date posted: September 2, 2005  

Suggested Citation

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance, Just How Much Do Individual Investors Lose By Trading? (May 2007). AFA 2006 Boston Meetings Paper; EFA 2005 Moscow Meetings Paper. Available at SSRN: http://ssrn.com/abstract=529062 or http://dx.doi.org/10.2139/ssrn.529062

Contact Information

Brad M. Barber (Contact Author)
University of California, Davis ( email )
Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)
Yi-Tsung Lee
Peking University - Guanghua School of Management ( email )
Office 336, Guanghua Building 2
Beijing, Beijing 100871
China
(86-10) 6275 5742 (Phone)
(86-10) 6275 5742 (Fax)
Yu-Jane Liu
National Chengchi University (NCCU) - Department of Finance and Banking ( email )
64, Chih-nan Rd., Sec. 2, Mucha,
Taipei, 116
Taiwan ROC
(882)-2-2939-3091 ext. 81123 (Phone)
Terrance Odean
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)
HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html
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