 Is online trading gambling with peanuts?Anders Anderson No 06-02, Papers from Sonderforschungsbreich 504 Abstract: If individuals derive a small utility from gambling, we should observe high turnover in portfolios that are of only marginal importance to them. By the use of detailed individual financial data, as well as trades from a Swedish online broker, I measure the frequency and cost of online trading in the cross-section, and find the opposite relation. Those who have online portfolios that constitute a large share of risky assets trade more aggressively, but have lower trading performance. These results can be explained by a simple Treynor-Black portfolio model where investors suffer from biased self-assessment, rather than possessing true investment skill. The overall result suggests that the cost of online trading can be substantial. The top quintile of investors who have the highest share of their total financial assets in stocks invested at the brokerage firm under study loose 3.70% of their financial wealth annually, which corresponds to 1.38% of aggregate income within this group. These investors do not only hve lower overall wealth and income, but also have the highest aggregate trading losses. Therefore, trading losses are mainly carried by those who can afford them the least. Across individuals, annual losses for 36% of investors exceed 1% of their financial wealth, and 17% lose more than 5%. Keywords: Investor behavior; performance evaluation; online trading; overconfidence (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:mnh:spaper:2604 Access Statistics for this paper More papers in Papers from Sonderforschungsbreich 504 Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.