Rationalizing Trading Frequency and Returns: Maybe Trading is Good for You

Yosef Bonaparte, Russell Cooper and Mengli Sha

No 25838, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Barber and Odean (2000) find that households who trade more have a lower net return than others and attribute this pattern to irrationality, particularly overconfidence. In contrast, we find that household financial choices generated from a dynamic optimization problem with rational agents and portfolio adjustment costs can reproduce the observed pattern of households with large turnover having lower net returns. Various forms of irrationality, modeled as beliefs about income and return processes that are not data based, do not improve the ability of the baseline model to explain these turnover and net returns patterns.

JEL-codes: E03 E21 G11 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-mac
Note: EFG
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