Online Investors: Do the Slow Die First?

Brad Barber and Terrance Odean

The Review of Financial Studies, 2002, vol. 15, issue 2, 455-488

Abstract: We analyze 1,607 investors who switched from phone-based to online trading during the 1990s. Those who switch to online trading perform well prior to going online, beating the market by more than 2% annually. After going online, they trade more actively, more speculatively, and less profitably than before--lagging the market by more than 3% annually. Reductions in market frictions (lower trading costs, improved execution speed, and greater ease of access) do not explain these findings. Overconfidence--augmented by self-attribution bias and the illusions of knowledge and control--can explain the increase in trading and reduction in performance of online investors. Copyright 2002, Oxford University Press.

Date: 2002
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