Investment"
BY: BRAD BARBER
University of California, Davis
TERRANCE ODEAN
University of California, Davis, Graduate School of
Management
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Date: November 1998
Contact: TERRANCE ODEAN
Email: Mailto:odean at ucdavis.edu
Postal: University of California, Davis, Graduate School of
Management
Davis, CA 95616-8609 USA
Phone: (530)752-5332
Fax: (530)752-2924
Co-Auth: BRAD BARBER
Email: Mailto:bmbarber at ucdavis.edu
Postal: University of California, Davis
Davis, CA 95616-8609 USA
Hard Copy Paper Requests:
Indicate author's name when requesting paper. Contact: Kathy
Thoren, Administrative Assistant, University of California,
Graduate School of Management, Davis, CA 95616 USA
Mailto:mkthoren at ucdavis.edu
ABSTRACT:
Theoretical models of financial markets built on the assumption
that some investors are overconfident yield one central
prediction: overconfident investors will trade too much. We test
this prediction by partitioning investors on the basis of a
variable that provides a natural proxy for
overconfidence--gender. Psychological research has established
that men are more prone to overconfidence than women. Thus,
models of investor overconfidence predict that men will trade
more and perform worse than women. Using account data for over
35,000 households from a large discount brokerage firm, we
analyze the common stock investments of men and women from
February 1991 through January 1997. Consistent with the
predictions of the overconfidence models, we document that men
trade 45 percent more than women and earn annual risk-adjusted
net returns that are 1.4 percent less than those earned by
women. These differences are more pronounced between single men
and single women; single men trade 67 percent more than single
women and earn annual risk-adjusted net returns that are 2.3
percent less than those earned by single women.
JEL Classification: G1