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Does the Internet Increase Trading? Evidence from Investor Behavior in 401(k) Plans

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  • James J. Choi
  • David Laibson
  • Andrew Metrick

Abstract

We analyze the impact of a Web-based trading channel on the trading activity in two corporate 401(k) plans. Using detailed data on about 100,000 participants, we compare trading growth in these firms to growth for a sample of firms without a Web channel. After 18 months of access, the inferred Web effect is very large: trading frequency doubles, and portfolio turnover rises by over 50 percent. We also document several patterns of Web-trading behavior. Young, male, and wealthy participants are more likely to try the Web channel. Frequent traders (before Web introduction) are less likely to try the Web. Participants who try the Web tend to stick with it. Web trades tend to be smaller than phone trades both in dollars and as a fraction of portfolio. Short-term' trades make up a higher proportion of phone trades than of Web trades.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7878.

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Date of creation: Sep 2000
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Publication status: published as Choi, James J., David Laibson, and Andrew Metrick. "How Does the Internet Affect Trading? Evidence from Investor Behavior in 401(k) Plans." Journal of Financial Economics 64 (June 2002): 397-421.
Handle: RePEc:nbr:nberwo:7878

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  1. John M.R. Chalmers & Roger M. Edelen & Gregory B. Kadlec, 1999. "The Wildcard Option in Transacting Mutual-Fund Shares," Center for Financial Institutions Working Papers 00-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Mark Grinblatt, 2001. "What Makes Investors Trade?," Journal of Finance, American Finance Association, vol. 56(2), pages 589-616, 04.
  3. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
  4. Chevalier, J. & Ellison, G., 1996. "Risk Taking by Mutual Funds as a Response to Incentives," Working papers 96-3, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Edelen, Roger M., 1999. "Investor flows and the assessed performance of open-end mutual funds," Journal of Financial Economics, Elsevier, vol. 53(3), pages 439-466, September.
  6. Goetzmann, William N. & Ivković, Zoran & Rouwenhorst, K. Geert, 2001. "Day Trading International Mutual Funds: Evidence and Policy Solutions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(03), pages 287-309, September.
  7. Bergstresser, Daniel & Poterba, James, 2002. "Do after-tax returns affect mutual fund inflows?," Journal of Financial Economics, Elsevier, vol. 63(3), pages 381-414, March.
  8. William N. Goetzmann & Massimo Massa & K. Geert Rouwenhorst, 2000. "Behavioral Factors in Mutual Fund Flows," Yale School of Management Working Papers ysm135, Yale School of Management.
  9. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04.
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Cited by:
  1. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
  2. Brad M. Barber & Terrance Odean, 2001. "The Internet and the Investor," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 41-54, Winter.
  3. Ulrike Malmendier & Stefan Nagel, 2009. "Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking?," NBER Working Papers 14813, National Bureau of Economic Research, Inc.
  4. Chan, Terence & Watson, Iain & Wee, Marvin, 2005. "The impact of the Internet on earnings announcements," Pacific-Basin Finance Journal, Elsevier, vol. 13(3), pages 263-300, June.
  5. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2001. "Social Interaction and Stock-Market Participation," NBER Working Papers 8358, National Bureau of Economic Research, Inc.
  6. Gene D'Avolio & Efi Gildor & Andrei Shleifer, 2001. "Technology, Information Production, and Market Efficiency," Harvard Institute of Economic Research Working Papers 1929, Harvard - Institute of Economic Research.
  7. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance 0305011, EconWPA.

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