Learning By Trading
University of Chicago - Booth School of Business and NBER
The Stephen M. Ross School of Business at the University of Michigan
Indiana University Bloomington - Department of Finance
February 15, 2009
Using a large sample of individual investor records over a nine-year period, we analyze survival rates, the disposition effect and trading performance at the individual level to determine whether and how investors learn from their trading experience. We find evidence of two types of learning: some investors become better at trading with experience, while others stop trading after realizing that their ability is poor. A substantial part of overall learning by trading is explained by the second type. By ignoring investor attrition, the existing literature significantly overestimates how quickly investors become better at trading.
Number of Pages in PDF File: 49
Keywords: Learning, Behavioral Biases, Disposition Effect, Individual Investor Performance
JEL Classification: D10, G10working papers series
Date posted: March 20, 2006 ; Last revised: February 18, 2009
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