Individual Investing

Does interaction with peers significantly affect the choices of individual investors? Are some individuals more susceptible to such pressure than others? In their April 2008 paper entitled “Susceptibility to Interpersonal Influence in an Investment Context”, A. Hoffmann and Thijs Broekhuizen investigate how interpersonal influences affect the investment decisions of individuals and which individuals are most susceptible to such influences. Combining the results of a laboratory experiment involving 154 university students and a survey of 287 investors, they conclude that: Keep Reading

Does sharing ideas and actions with a community help make individual active traders successful? In the March 2008 version of their paper entitled “Experts Online: An Analysis of Trading Activity in a Public Internet Chat Room”, Bruce Mizrach and Susan Weerts study a group of active traders who voluntarily posted their trades in real time in a free public Internet chat room called Activetrader. Using data on 8,967 trades by 676 traders from four snapshots (64 total trading days) during 2000-2003, along with survey responses from 67 of these traders, they conclude that: Keep Reading

The unreal deal, as found in the cyber-alleys off Wall Street… Keep Reading

How and why do individual U.S. investors diversify internationally? How significantly does this diversification affect their portfolio results? In their April 2007 paper entitled “Foreign Investments of U.S. Individual Investors: Causes and Consequences”, Warren Bailey, Alok Kumar and David Ng analyze the motivations and consequences of foreign equity investment by individual U.S. investors. Using personal characteristics and portfolio/trading data from tens of thousands of individual brokerage accounts at a major U.S. discount broker for the period 1/91-12/96, they conclude that: Keep Reading

Is individual investing an inevitable series of randomly spaced ups and downs, or do some investors persistently enjoy more success than others? In their August 2007 paper entitled “Performance Persistence of Individual Investors”, Limei Che, Øyvind Norli and Richard Priestley investigate performance persistence among individual stock market investors/traders. Using monthly stock portfolio data for all individual investors who traded at least six times every 24 months on the Oslo Stock Exchange during January 1993 through June 2003 (65,848 investors), they find that: Keep Reading

Do individuals understand their actual aggregate investing/trading performance? In their July 2007 paper entitled “Why Inexperienced Investors Do Not Learn: They Don’t Know Their Past Portfolio Performance”, Markus Glaser and Martin Weber measure whether individual investors can correctly estimate personal absolute and relative stock portfolio performance. Using the responses of 215 online investors to a 2001 internet survey and actual portfolio returns for these investors during 1997-2000 as calculated from their holdings during that period, they find that: Keep Reading

Readers recently requested evaluations of two different retail investment managers. Our reviews involve simply putting the information the firms make available on their web sites into the context of broad stock market research. Our findings for the two firms are similar, as follows: Keep Reading

What is the recent evidence on the performance of individual investors? Do some persistently outperform and, if so, why? In the February 2007 draft of their paper entitled “The Performance and Persistence of Individual Investors: Rational Agents or Tulip Maniacs?”, Rob Bauer, Mathijs Cosemans and Piet Eichholtz examine the performance and persistence of individual investors trading at a Dutch online broker. Using a database consisting of more than 68,000 accounts and eight million trades in stocks, bonds and derivatives during January 2000 to March 2006, they find that: Keep Reading

Is more investment information always better? Are there unintended consequences for individual investors/traders acquiring investment information? Specifically, do individual investors/traders systematically acquire information to support rational future decision-making, or do they focus on information that confirms (and builds overconfidence in) decisions already made? The following two recent studies examine these questions, with results as follows: Keep Reading

How do typical investors/traders process advice from others? Are they overconfidently dismissive, or underconfidently trading on the latest guru pronouncement? In their February 2006 paper entitled “Effects of Task Difficulty on Use of Advice”, Francesca Gino and Don Moore perform two controlled experiments to examine the tendencies of people to reject or accept advice depending on the complexity of the associated task. In one experiment, the 61 participants (mostly university students) must seek advice, and in the other they have the option of seeking advice. Since the advice came from other participants who were generally no better informed, the best strategy for each participant was to reduce noise by averaging own opinion and advisor’s opinion. Based on the results of these experiments, the authors conclude that: Keep Reading