39 Pages Posted: 6 Jan 2003
Date Written: September 2005
We document strong persistence in the performance of trades of individual investors. The correlation of the risk-adjusted performance of an individual across sample periods is about 10 percent. Investors classified in the top performance decile in the first half of our sample subsequently outperform those in the bottom decile by about 8 percent per year. Strategies long in firms purchased by previously successful investors and short in firms purchased by previously unsuccessful investors earn abnormal returns of 5 basis points per day. These returns are not confined to small stocks nor to stocks in which the investors are likely to have inside information. Our results suggest that skillful individual investors exploit market inefficiencies to earn abnormal profits, above and beyond any profits available from well-known strategies based upon size, value, or momentum.
Keywords: Individual Investors, Market Efficiency, Performance Persistence
JEL Classification: G1, D1
Suggested Citation: Suggested Citation
Coval, Joshua D. and Hirshleifer, David A. and Shumway, Tyler, Can Individual Investors Beat the Market? (September 2005). HBS Finance Working Paper No. 04-025; Harvard NOM Working Paper No. 02-45. Available at SSRN: https://ssrn.com/abstract=364000 or http://dx.doi.org/10.2139/ssrn.364000
By Richard Sias