Rationalizing Trading Frequency and Returns

Yosef Bonaparte and Russell Cooper

No 16022, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Barber and Odean (2000) study the relationship between trading frequency andreturns. They find that households who trade more frequently have a lower net return than other households. But all households have about the same gross return. They argue that these results cannot emerge from a model with rational traders and instead attribute these findings to overconfidence. Using a dynamic optimization approach, we find that neither a model with rational agents facing adjustment costs nor various models of overconfidence fit these facts.

JEL-codes: E21 G11 (search for similar items in EconPapers)
Date: 2010-05
Note: EFG
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