The Correlated Trading and Investment Performance of Individual Investors
50 Pages Posted: 30 Aug 2014 Last revised: 5 Sep 2018
Date Written: September 1, 2018
We find that individual investors tend to trade in the same direction as other individual investors in the same broker branch. The more pronounced an individual investor’s herding behavior, the worse she performs in her investments. One explanation that herding investors underperform is the poor market timing of their trades. We find that limit orders from those who herd more have a longer time-to-execution and time-to-cancellation, indicating that these orders face a fierce competition to execute and tend to become stale after submissions. Finally, we find that individual investors learn from their past experience and herd less in the future.
Keywords: herding, trading correlation, investment performance, individual investors, learning
JEL Classification: G02, G15
Suggested Citation: Suggested Citation