Handbook of the Economics of Finance

Chapter 22

The Behavior of Individual Investors ^*

Brad M. Barber^a and Terrance Odean^b

^aGraduate School of Management, University of California, Davis, Davis, CA 95616, USA. Tel.:[phone]

^bHaas School of Business, University of California, Berkeley, Berkeley, CA 94720, USA. Tel.:[phone], [e-mail] http://www.gsm.ucdavis.edu/~bmbarber

Abstract

We provide an overview of research on the stock trading behavior of individual investors. This research documents that individual investors (1) underperform standard benchmarks (e.g. a low-cost index fund), (2) sell winning investments while holding losing investments (the “disposition effect”), (3) are heavily influenced by limited attention and past return performance in their ...