Can Individual Investors Beat the Market?

Joshua D. Coval, David Hirshleifer and Tyler G. Shumway
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Joshua D. Coval: Harvard University - Finance Unit
Tyler G. Shumway: University of Michigan

Finance from EconWPA

Abstract: We document strong persistence in the performance of trades of individual investors. Investors classified in the top 10 percent place other trades that on average earn excess returns of 15 basis points per day. A rolling-forward strategy of going long firms purchased by previously successful investors and shorting firms purchased by previously unsuccessful investors results in excess returns of 5 basis points per day. These returns are not confined to small stocks nor to stocks in which the investors are likely to have inside information. Our results suggest that skillful individual investors exploit market inefficiencies to earn abnormal profits, above and beyond any profits available from well-known strategies based upon size, value, or momentum.

Keywords: Individual Investors; Market Efficiency; Performance Persistence (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-12-04
Note: Type of Document - pdf; pages: 45. PDF
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0412005

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