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Technical Analysis and Individual Investors

67 Pages Posted: 27 Feb 2014 Last revised: 13 Jan 2015

Arvid O. I. Hoffmann

University of Adelaide - Business School; Network for Studies on Pensions, Aging and Retirement (Netspar)

Hersh Shefrin

Santa Clara University - Leavey School of Business

Date Written: February 25, 2014

Abstract

We find that individual investors who use technical analysis and trade options frequently make poor portfolio decisions, resulting in dramatically lower returns than other investors. The data on which this claim is based consists of transaction records and matched survey responses of a sample of Dutch discount brokerage clients for the period 2000-2006. Overall, our results indicate that individual investors who report using technical analysis are disproportionately prone to have speculation on short-term stock-market developments as their primary investment objective, hold more concentrated portfolios which they turn over at a higher rate, are less inclined to bet on reversals, choose risk exposures featuring a higher ratio of nonsystematic risk to total risk, engage in more options trading, and earn lower returns.

Keywords: Behavioral Finance, Household Finance, Individual Investors, Investor Behavior, Investor Performance, Technical Analysis, Speculation

JEL Classification: D03, G02, G11, G24

Suggested Citation

Hoffmann, Arvid O. I. and Shefrin, Hersh, Technical Analysis and Individual Investors (February 25, 2014). Journal of Economic Behavior and Organization, 107 (November), pp. 487-511. Available at SSRN: https://ssrn.com/abstract=2401230 or http://dx.doi.org/10.2139/ssrn.2401230

Arvid O. I. Hoffmann

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Network for Studies on Pensions, Aging and Retirement (Netspar)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Hersh Shefrin (Contact Author)

Santa Clara University - Leavey School of Business ( email )

Dept. of Finance
Santa Clara, CA 95053
United States
408-554-6893 (Phone)
408-554-4029 (Fax)

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