Resolving the excessive trading puzzle: an integrated approach based on surveys and transactions

Hongqi Liu, Cameron Peng, Wei A. Xiong and Wei Xiong

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The literature has provided over a dozen explanations for the widely documented excessive trading puzzle of retail investors trading so much that it hurts their performance. It is difficult to use transaction data to differentiate these explanations as they share similar predictions by design. To confront this challenge, we design and administer a nationwide survey to elicit investors' responses to an exhaustive list of trading motives. By merging survey responses with account-level transaction data, we validate survey responses with actual trading behaviors and compare the power of survey-based and transaction-based trading motives. A horse race among survey- based trading motives suggests that perceived information advantage and gambling preference dominate other explanations. Moreover, other popular arguments, such as neglect of trading costs, do not contribute to excessive trading.

JEL-codes: G10 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2020-09-30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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