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

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Author Info
James J. Choi
David Laibson
Andrew Metrick

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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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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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Handle: RePEc:nbr:nberwo:7878

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D0 - Microeconomics - - General
G0 - Financial Economics - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Daniel Bergstresser & James Poterba, 2000. "Do After-Tax Returns Affect Mutual Fund Inflows?," NBER Working Papers 7595, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. K. Geert Rouwenhorst & William N. Goetzmann & Zoran Ivkovich, 2000. "Day Trading International Mutual Funds: Evidence And Policy Solutions," Yale School of Management Working Papers ysm138, Yale School of Management. [Downloadable!]
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  3. Mark Grinblatt & Matti Keloharju, 2000. "What Makes Investors Trade?," Yale School of Management Working Papers ysm146, Yale School of Management. [Downloadable!]
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  4. 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. [Downloadable!] (restricted)
  5. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
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  6. 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. [Downloadable!]
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  7. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gene D'Avolio & Efi Gildor & Andrei Shleifer, 2001. "Technology, information production, and market efficiency," Proceedings, Federal Reserve Bank of Kansas City, pages 125-160. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance 0305011, EconWPA. [Downloadable!]
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