Performance Of Individual Investors Research Articles

The Role of Intelligence in Individual Investor Performance and Trading Behaviors: Empirical Tests with Simulation Data

The Role of Intelligence in Individual Investor Performance and Trading Behaviors: Empirical Tests with Simulation Data

Realization utility

A number of authors have suggested that investors derive utility from realizing gains and losses on assets that they own. We present a model of this “realization utility,” analyze its predictions, and show that it can shed light on a number of puzzling facts. These include the disposition effect, the poor trading performance of individual investors, the higher volume of trade in rising markets, the effect of historical highs on the propensity to sell, the individual investor preference for volatile stocks, the low average return of volatile stocks, and the heavy trading associated with highly valued assets.

The Impact of Financial Advisors on Individual Investor Portfolio Performance

This paper examines the influence of financial advisors on the portfolio performance of individual investors. We use an unique dataset of of 233,693 monthly equity returns of 6,758 Dutch investors during a 52 month time span. By using panel estimation techniques, we find that advisors have a significant negative effect on gross and net equity returns of individual investors. Results from the Glesjer’s (1969) test support the notion that this outcome can (at least partly) be explained by lower return variability in advised portfolios. 1 Finance Department, Faculty of Economics & Business, University of Groningen (NL) , E-Mail: m.m.kramer@rug.nl. The usual disclaimer applies.

Option trading and individual investor performance

This paper examines the impact of option trading on individual investor performance. The results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading. We attribute the detrimental impact of option trading on investor performance to poor market timing that results from overreaction to past stock market returns. High trading costs further contribute to the poor returns on option investments. Gambling and entertainment appear to be the most important motivations for trading options while hedging motives only play a minor role. We also provide strong evidence of performance persistence among option traders.

Option Trading and Individual Investor Performance

This paper examines the impact of option trading on individual investor performance. The results show that most investors incur substantial losses on their option investments, which are much larger than the losses from equity trading. We attribute the detrimental impact of option trading on investor performance to poor market timing that results from overreaction to past stock market returns. High trading costs further contribute to the poor returns on option investments. Gambling and entertainment appear to be the most important motivations for trading options while hedging motives only play a minor role. We also provide strong evidence of performance persistence among option traders.

Portfolio Concentration and the Performance of Individual Investors

AbstractThis paper tests whether information advantages help explain why some individual investors concentrate their stock portfolios in a few stocks. Stock investments made by households that choose to concentrate their brokerage accounts in a few stocks outperform those made by households with more diversified accounts (especially among those with large portfolios). Excess returns of concentrated relative to diversified portfolios are stronger for stocks not included in the S&P 500 index and local stocks, potentially reflecting concentracted investors' successful exploitation of information asymmetries. Controlling for households' average investment abilities, their trades and holdings perform better when their portfolios include fewer stocks.

Performance Persistence of Individual Investors

Using unique data on month-end stock market portfolios of all individual investors over an eleven year period, we nd that a substantial number of investors exhibit economically and statistically signicant performance persistence. Furthermore, a portfolio that is long in stocks previously favored by top performing investors earns a substantial risk adjusted return. These nding are robust to how we measure past performance, how often investors trade, and to the size of investors’ portfolios. Unlike the evidence from mutual and pension funds, the persistence in performance of individual investors is not concentrated in portfolios with poor prior performance.

Limit Order Trading Behavior and Individual Investor Performance

Using highly detailed data from a major Australian online broker, we investigate individual investors' limit order behavior and performance. We examine relative performance categorized by number and size of limit orders placed, and by proportion of orders that execute. We find that individuals who place the most orders and have the highest number of transactions enjoy higher returns than those with the fewest orders and transactions. The best performers have the highest proportion of orders execute and place smaller orders than the worst performers. These findings are robust after controlling for stock characteristics with the Fama and French [1992] factor model.

The KOSPI200 Index Option Trading Behavior and Performance of Individual Investors

We examine the argument of the Financial Supervisory Service that the behavior of the Individual Investors to buy an out-of-the-money option is excessively speculative. The FSS reported that the individual investors incurred huge losses in the trading of KOSPI200 index options for the years 2002 and 2003. But since the sample period is relatively short, the argument does not seem fully convincing. Using a longer period data from July 1997 to December 2003, we reconfirm the huge losses of the Individual investors and also find that a tendency of individual investors losing money in association with option trading perSisted during the longer period. The individual investors chose out-of-the money options with short time to maturity, that are cheap and thus are expected to make huge profits with very low probabilities. Finally, we tind that out-ot-the money options with short time to maturity turn out to be in general priced higher than what the Korea Stock Exchange model suggests. The practice of purchasing out-of-the-money options for the reason of cheap prices and huge profit possibilities can be regarded as being excessively speculative. Due to overpricing, the individual investors persistently incurred some losses.

Portfolio Concentration and the Performance of Individual Investors

This paper tests whether information advantages help explain why some individual investors concentrate their stock portfolios in a few stocks. Stock investments made by households that choose to concentrate their brokerage accounts in a few stocks outperform those made by households with more diversified accounts (especially among those with large portfolios). Excess returns of concentrated relative to diversified portfolios are stronger for stocks not included in the S&P 500 index and local stocks, potentially reflecting concentrated investors' successful exploitation of information asymmetries. Controlling for households' average investment abilities, their trades and holdings perform better when their portfolios include fewer stocks.

Portfolio Concentration and the Performance of Individual Investors

Using data on the investments a large number of individual investors made through a discount broker from 1991 to 1996, we find that the stock trades by households with concentrated portfolios outperform those with diversified portfolios. While in general the stocks bought by individual investors significantly underperform the stocks they sell, the reverse is true for households whose holdings are concentrated in a few stocks. The excess return of concentrated relative to diversified portfolios is stronger for households with large account balances as well as for stocks not included in the S&P 500 Index and local stocks, potentially reflecting concentrated investors' successful exploitation of information asymmetries. This finding is very robust to alternative concentration measures and regression specifications, and to alternative explanations such as differences across concentrated and diversified investors in the portfolio turnover and access to inside information, suggesting that some of these concentrated households have superior information processing skills. Moreover, controlling for a household's average investment ability, the household's trades perform better as the household's portfolio includes fewer stocks. However, while concentrated household portfolios on average outperform diversified ones, their levels of total risk are larger and the Sharpe ratios of their stock portfolios are lower.

Does Trading Improve Individual Investor Performance?

From 52,649 accounts and 10,615,117 transaction records obtained from a renowned brokerage house in Taiwan we find that individual investors purchase 73.4% and sell 64.5% of their stock portfolios each month. This is more than ten times the statistics for their U.S. counterparts. In general, individual investors have positive abnormal returns from factor-based models. However, they would have earned higher returns from following a buy-and-hold strategy. We find a U-shaped rather than a monotonic turnover and performance relation. The results do not support the overconfidence argument proposed by Barber and Odean (2000, 2001) nor does the rational model of Grossman and Stiglitz (1980). We find that investors with large portfolio values tend to be informed traders whose excess trading does create performance value. We also investigate whether men are more overconfident than women and find that even though men trade more excessively than women, men's performance measures are not dramatically lower than women's. Specifically, the own-benchmark adjusted gross return for men is higher than that for women. The regression results indicate that electronic traders rather than men are overconfident.

Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors

Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that traded most earned an annual return of 11.4 percent, while the market returned 17.9 percent. The average household earned an annual return of 16.4 percent, tilted its common stock investment toward high-beta, small, value stocks, and turned over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.

Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors

Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earn an annual return of 11.4 percent, while the market returns 17.9 percent. The average household earns an annual return of 16.4 percent, tilts its common stock investment toward high‐beta, small, value stocks, and turns over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.

Too Many Cooks Spoil the Profits: Investment Club Performance

We report our analysis, using account data from a large discount brokerage firm, of the common stock investment performance of 166 investment clubs from February 1991 through January 1997. The average club tilted its common stock investment toward high-beta, small-cap growth stocks and turned over 65 percent of its portfolio annually. The average club lagged the performance of a broad-based market index and the performance of individual investors. Moreover, 60 percent of the clubs underperformed the index.

The Common Stock Investment Performance of Individual Investors

Using account data for over 60,000 households from a large discount brokerage firm, we analyze the common stock investment performance of individual investors from February 1991 through December 1996. The average household tilts their common stock investment toward high-beta, small, value stocks, and turns over 80 per cent of their portfolio annually. On one hand, the gross returns (before accounting for transaction costs) earned by the average household are unremarkable; the average household earned an annualized geometric mean gross return of 17.7 per cent while the value-weighted market index earned 17.1 per cent. On the other hand, the net returns earned by the average household lag reasonable benchmarks by economically and statistically significant amounts; the average household earned an annualized geometric mean net return of 15.3 per cent. The 20 per cent of households that trade most (which average at least 9.6 per cent turnover per month) earned an annualized geometric mean net return of 10.0 per cent. The poor performance of those households that trade frequently is generally consistent with the implications of recent theoretical models of investor overconfidence. Our central message is that trading is hazardous to your wealth.

Testing market efficiency with information on individual investor performance

The efficient market hypothesis has been tested under a variety of settings. Several authors have utilized stock market data while others have used betting markets including National Football League games and horse racing. These betting markets are similar to stock markets in terms of their large amounts of information and ease of tracking results. This paper analyzes the efficient market hypothesis for a quite different, nonbetting, racetrack market known as claiming races. The nature of the market and the available data allow individual investor performance to be followed over time. While data limitations have restricted previous authors to ex-post determination of whether particular advantageous decision rules could have been utilized, our access to individual data enables us to analyze whether individuals were able to determine decision paths that resulted in superior performance. Our analysis indicates that the claiming race market is efficient in the sense that active participants do not systematically outperform the market average.

An Examination of Efficiency in British Racetrack Betting: Errata and Corrections

Previous articleNext article No AccessConfirmations and ContradictionsAn Examination of Efficiency in British Racetrack Betting: Errata and CorrectionsPaul Gabriel, and James R. MarsdenPaul Gabriel Search for more articles by this author , and James R. Marsden Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 99, Number 3Jun., 1991 Article DOIhttps://doi.org/10.1086/261772 Views: 2Total views on this site Citations: 21Citations are reported from Crossref Copyright 1991 The University of ChicagoPDF download Crossref reports the following articles citing this article:Chi Zhang, Jacco Thijssen On Sticky Bookmaking as a Learning Device in Horse-Racing Betting Markets, Journal of Economic Dynamics and Control 85 (Sep 2022): 104525.https://doi.org/10.1016/j.jedc.2022.104525Chung-Ching Tai, Hung-Wen Lin, Bin-Tzong Chie, Chen-Yuan Tung Predicting the failures of prediction markets: A procedure of decision making using classification models, International Journal of Forecasting 35, no.11 (Jan 2019): 297–312.https://doi.org/10.1016/j.ijforecast.2018.04.003Jianbo Li, Minggao Gu, Riquan Zhang, Heng Lian Variable selection for general transformation models with ranking data, Statistics 48, no.11 (Aug 2012): 81–100.https://doi.org/10.1080/02331888.2012.708034Jianbo Li, Minggao Gu, Tao Hu General partially linear varying-coefficient transformation models for ranking data, Journal of Applied Statistics 39, no.77 (Jul 2012): 1475–1488.https://doi.org/10.1080/02664763.2012.658357J.E.V. 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Stanton Testing market efficiency with information on individual investor performance, International Review of Economics & Finance 2, no.22 (Jan 1993): 149–162.https://doi.org/10.1016/1059-0560(93)90020-Q