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Online Investors: Do the Slow Die First?

Brad M. Barber¹; Terrance Odean²

¹ University of California, Davis · ² University of California, Berkeley

We analyze 1,607 investors who switched from phone-based to online trading during the 1990s. Those who switch to online trading perform well prior to going online, beating the market by more than 2% annually. After going online, they trade more actively, more speculatively, and less profitably than before—lagging the market by more than 3% annually. Reductions in market frictions (lower trading costs, improved execution speed, and greater ease of access) do not explain these findings. Overconfidence—augmented by self-attribution bias and the illusions of knowledge and control—can explain the increase in trading and reduction in performance of online investors.

DOI

10.1093/rfs/15.2.455

Volume

15 (2)

Pages

455-488

Language

en

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BibTeX

Sources

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