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Do individual investors learn from their trading experience

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Author Info
Gina Nicolosi
Liang Peng
Abstract

This paper investigates whether individual investors adjust their stock trading according to their stock selection abilities, which can be inferred from their trading history. Fixed-effect panel regressions provide strong evidence that the ability to forecast future stock returns significantly affects investors’ trading activity: investors purchase more actively if they are more likely to have stock selection ability. Furthermore, trading experience – measured by the number of purchases, the number of different stocks purchased, and the variance of purchase dollar amounts – significantly helps improve investors’ portfolio performance. In addition, we find that learning behavior varies across investors, which corroborates the heterogeneity of individual investors

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Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 532.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:532

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Keywords: individual investors learning rationality trading

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Find related papers by JEL classification:
D19 - Microeconomics - - Household Behavior - - - Other
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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  1. Mikhael Shor, 2003. "Learning to Respond: The Use of Heuristics in Dynamic Games," Game Theory and Information 0301001, EconWPA. [Downloadable!]
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    Other versions:
  3. Becker, Connie & Ferson, Wayne & Myers, David H. & Schill, Michael J., 1999. "Conditional market timing with benchmark investors," Journal of Financial Economics, Elsevier, vol. 52(1), pages 119-148, April. [Downloadable!] (restricted)
  4. Scott Weisbenner & Zoran Ivkovich, 2003. "Local Does as Local Is: Information Content of the Geography of Individual Investors' Common Stock Investments," NBER Working Papers 9685, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Nicholas Barberis & Richard Thaler, 2002. "A Survey of Behavioral Finance," NBER Working Papers 9222, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December. [Downloadable!] (restricted)
  15. Andrew Ang & Angela Maddaloni, 2003. "Do Demographic Changes Affect Risk Premiums? Evidence from International Data," NBER Working Papers 9677, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Alok Kumar & William N. Goetzmann, 2003. "Diversification Decisions of Individual Investors and Asset Prices," Yale School of Management Working Papers ysm441, Yale School of Management. [Downloadable!]
  17. Womack, Kent L, 1996. " Do Brokerage Analysts' Recommendations Have Investment Value?," Journal of Finance, American Finance Association, vol. 51(1), pages 137-67, March. [Downloadable!] (restricted)
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