Working Paper: NBER ID: w16022
Authors: Yosef Bonaparte; Russell Cooper
Abstract: Barber and Odean (2000) study the relationship between trading frequency andreturns. They find that households who trade more frequently have a lower net return than other households. But all households have about the same gross return. They argue that these results cannot emerge from a model with rational traders and instead attribute these findings to overconfidence. Using a dynamic optimization approach, we find that neither a model with rational agents facing adjustment costs nor various models of overconfidence fit these facts.
Keywords: trading frequency; returns; overconfidence; portfolio adjustment
JEL Codes: E21; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trading frequency (G14) | net returns (D33) |
| trading costs (F12) | net returns (D33) |
| household trading behavior (D19) | net returns (D33) |
| adjustment costs (J30) | net returns (D33) |
| overconfidence (G41) | net returns (D33) |
| trading frequency (G14) | gross returns (D33) |