Individual Investing

In their September 2004 paper entitled “Once Burned, Twice Shy: How Naive Learning and Counterfactuals Affect the Repurchase of Stocks Previously Sold”, Terrance Odean, Michal Strahilevitz and Brad Barber examine how past experience with a stock affects the average investor’s subsequent actions regarding that stock. Using trading records for 66,465 households at a large discount broker during 1991-1996 and 665,533 investors at a large retail broker during 1997-1999, they show that the average investor tends to: Keep Reading

In the April 2005 version of their paper entitled “One Trade at a Time: Narrow Framing and Stock Investment Decisions of Individual Investors”, Alok Kumar and Sonya Lim investigate whether individual traders take an optimizing big picture (How’s my portfolio doing?) or a suboptimizing little picture (How’s this stock doing?) approach to trading. Using a data on the portfolio holdings and trades of a sample of 41,039 individual investors (with demographics) at a large U.S. discount brokerage house during 1991-1996, they conclude that: Keep Reading

In the May 2005 update of their paper entitled “Optimism and Economic Choice”, Manju Puri and David Robinson use data from the Survey of Consumer Finances (conducted every three years since 1989) to investigate the economic decisions of optimists, including financial portfolio construction. Defining optimism based on the mismatches between the life expectancies estimated by respondents for themselves and those indicated independently by actuarial tables (optimists expect to live longer than indicated actuarially), they find that: Keep Reading

In the June 2005 update of their paper entitled “All that Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors”, Brad Barber and Terrance Odean examine the behaviors of individuals and institutions regarding attention-grabbing stocks. Using four datasets spanning 1991-1999 and focus on three measures associated with attention grabbing events (news, unusual trading volume and extreme returns), they find that: Keep Reading

In the October 2004 version of their working paper entitled “So What Orders Do Informed Traders Use?”, Ron Kaniel and Hong Liu apply the “probability of informed trading” measure to trading in 144 stocks around the end of 1990 to determine the trading habits of informed traders (those with private information related to asset valuation) regarding the use of market orders versus limit orders. They show that: Keep Reading

It is very easy to: (1) set up an account with an online, discount broker; (2) get margin and option-trading privileges; (3) read about hot stocks and funds on the web; and, (4) start trading. Is this process too easy for the average investor? Keep Reading

Thinking about stock message boards… Keep Reading

In case the market’s got you down… Keep Reading

In his June 2004 paper on “What Are Stock Investors’ Actual Historical Returns”, Ilia Dichev examines stock market capital inflows and outflows to determine how well investors really perform compared to buy-and-hold returns. He concludes that: Keep Reading

Is frequent trading an essential aspect of portfolio outperformance? In their April 2000 paper entitled “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors”, Brad Barber and Terrance Odean examine the trading behavior and returns of retail investors. Using data for 66,465 households at a large discount brokerage firm during 1991-1996, they find that: Keep Reading