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The performance of amateur traders on a public internet site: a case of a stock-exchange contest

  • Blanchard, michel
  • Bernard, philippe

We analyze a very thorough data base, including all of the bid/ask orders and daily portfolio values of more than 600 on-line amateur traders from February 2007 to June 2009. These traders were taking part in a stock-exchange contest proposed by the French Internet stock-exchange site Zonebourse. More than 80% of traders lose relative to the market. Their relative average annual performance varies from -38% to -60%, depending on the method used. In absolute, more than 99% of traders lose and face drastic losses: on average, portfolio values fall from an initial value of 100 to a terminal value of 7 in the 29 months covered here. When we include the rewards offered by the contest, average performance becomes -13% a year. However, only two deciles continue to beat the market. From an initial value of 100 the final value is 28 including rewards, but 95% of traders still lose in absolute. There is no clear performance persistence for traders. Are the best traders just lucky then? Focusing on contest winners, the long-term transition analysis suggests a long-term probability of staying in the best decile which is greater than chance. We thus cannot reject a “star effect” of staying in the best decile. However, the great majority of amateurs do seem to be e-pigeons. Online trading may just be costly entertainment, like casino gambling.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34304.

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Date of creation: 24 Oct 2011
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Handle: RePEc:pra:mprapa:34304
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  1. Mizrach, Bruce & Weerts, Susan, 2009. "Experts online: An analysis of trading activity in a public Internet chat room," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 266-281, May.
  2. Brad M. Barber & Yi-Tsung Lee & Yu-Jane Liu & Terrance Odean, 2009. "Just How Much Do Individual Investors Lose by Trading?," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 609-632, February.
  3. Shefrin, Hersh & Statman, Meir, 1985. " The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-90, July.
  4. Terrance Odean, 1999. "Do Investors Trade Too Much?," American Economic Review, American Economic Association, vol. 89(5), pages 1279-1298, December.
  5. Daniel Dorn & Paul Sengmueller, 2009. "Trading as Entertainment?," Management Science, INFORMS, vol. 55(4), pages 591-603, April.
  6. 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.
  7. Constantinides, George M, 1985. " The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence: Discussion," Journal of Finance, American Finance Association, vol. 40(3), pages 791-92, July.
  8. Choi, James J. & Laibson, David & Metrick, Andrew, 2002. "How does the Internet affect trading? Evidence from investor behavior in 401(k) plans," Journal of Financial Economics, Elsevier, vol. 64(3), pages 397-421, June.
  9. Brad M. Barber & Terrance Odean, 2002. "Online Investors: Do the Slow Die First?," Review of Financial Studies, Society for Financial Studies, vol. 15(2), pages 455-488, March.
  10. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
  11. Peter O. Dietz, 1968. "Components Of A Measurement Model: Rate Of Return, Risk, And Timing," Journal of Finance, American Finance Association, vol. 23(2), pages 267-275, 05.
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