Chapter 22

The Behavior of Individual Investors *

Brad M. Barbera and Terrance Odeanb

aGraduate School of Management, University of California, Davis, Davis, CA 95616, USA. Tel.:+1 (530) 752 0512

bHaas School of Business, University of California, Berkeley, Berkeley, CA 94720, USA. Tel.:+1 (510) 642 6767, bmbarber@ucdavis.edu 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 ...

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