Citations (346)



Do Investors Trade Too Much?

Terrance Odean

University of California, Berkeley - Haas School of Business

April 1998

This paper takes a first step towards demonstrating that overall trading volume in equity markets is excessive, by showing that it is excessive for a particular group of investors: those with discount brokerage accounts. One possible cause of excessive trading is overconfidence. Overconfident investors will trade too frequently, that is, the gains overconfident investors realize through trade will be less than they anticipate and may not even offset the costs of trading. By analyzing trading records for 10,000 accounts at a large discount brokerage house, I test whether the securities these investors purchase outperform those they sell by enough to cover the costs of trading. I find the surprising result that, on average, the securities they purchase actually underperform those they sell. This is the case even when trading is not apparently motivated by liquidity demands, tax-loss selling, portfolio rebalancing, or a move to lower-risk securities. I examine return patterns before and after transactions. Return patterns before purchases and sales can be explained by the difficulty of the search for securities to buy, investors' tendency to let their attention be directed by outside sources, the disposition effect, and investors' reluctance to sell short.

Number of Pages in PDF File: 41

JEL Classification: G12, G14

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Date posted: June 2, 1998  

Suggested Citation

Odean, Terrance, Do Investors Trade Too Much? (April 1998). Available at SSRN: https://ssrn.com/abstract=94143 or http://dx.doi.org/10.2139/ssrn.94143

Contact Information

Terrance Odean (Contact Author)
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)
HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

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