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Learning By Trading

49 Pages Posted: 20 Mar 2006 Last revised: 14 May 2014

Amit Seru

Stanford University

Tyler Shumway

University of Michigan at Ann Arbor, The Stephen M. Ross School of Business

Noah Stoffman

Indiana University - Kelley School of Business - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2009

Abstract

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.

Keywords: Learning, Behavioral Biases, Disposition Effect, Individual Investor Performance

JEL Classification: D10, G10

Suggested Citation

Seru, Amit and Shumway, Tyler and Stoffman, Noah, Learning By Trading (February 15, 2009). Available at SSRN: https://ssrn.com/abstract=891694 or http://dx.doi.org/10.2139/ssrn.891694

Amit Seru

Stanford University ( email )

650 Knight Management
Stanford, CA 94305
United States

Tyler Shumway (Contact Author)

University of Michigan at Ann Arbor, The Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-4129 (Phone)
734-936-0274 (Fax)

HOME PAGE: http://www.umich.edu/~shumway

Noah Stoffman

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
(812) 856-5664 (Phone)

HOME PAGE: http://kelley.iu.edu/nstoffma/

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