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Learning by Trading

Amit Seru1; Tyler Shumway2,3; Noah Stoffman4

1 #N#Chicago GSB#N# · 2 University of Michigan–Ann Arbor · 3 Ross School · 4 Indiana University

Review of Financial Studies 2010

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.

DOI
10.1093/rfs/hhp060
Volume
23 (2)
Pages
705-739
Language
en
Export
BibTeX
Sources
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