Technical Analysis and Individual Investors
67 Pages Posted: 27 Feb 2014 Last revised: 13 Jan 2015
Date Written: February 25, 2014
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: Suggested Citation