Keywords

individual investors, market efficiency, performance persistence

Abstract

We document strong persistence in the performance of trades of individual investors. The correlation of the risk-adjusted performance of an individual across sample periods is about 10 percent. Investors classified in the top performance decile in the first half of our sample subsequently outperform those in the bottom decile by about 8 percent per year. Strategies long in firms purchased by previously successful investors and short in firms purchased by previously unsuccessful investors earn abnormal 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.

Original Publication Citation

Can Individual Investors Beat the Market? 2021, with Joshua Coval and David Hirshleifer, Review of Asset Pricing Studies

Document Type

Peer-Reviewed Article

Publication Date

2005

Publisher

Review of Asset Pricing Studies

Language

English

College

Marriott School of Business

Department

Finance

University Standing at Time of Publication

Full Professor

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