Just how much do individual investors lose by trading?
Abstract
Individual investor trading results in systematic and economically large losses. Using a complete trading history of all investors in Taiwan, we document that the aggregate portfolio of individuals suffers an annual performance penalty of 3.8 percentage points. Individual investor losses are equivalent to 2.2% of Taiwan's gross domestic product or 2.8% of the total personal income. Virtually all individual trading losses can be traced to their aggressive orders. In contrast, institutions enjoy an annual performance boost of 1.5 percentage points, and both the aggressive and passive trades of institutions are profitable. Foreign institutions garner nearly half of institutional profits.
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The lion's share of abnormal returns earned around an informed trade occurs immediately following the trade.
“Several prior studies document that the lion's share of abnormal returns earned around an informed trade occurs immediately following the trade (e.g., Coval, Hirshleifer and Shumway (2005); Grinblatt, Keloharju, and Linnainmaa (2012); Barber, Lee, Liu, and Odean (2009)).”
From The cross-section of speculator skill: Evidence from day trading (2014) · cites this paper as Barber, Lee, Liu, and Odean (2009)
Most of the gains (and losses) from trade tend to occur immediately following a trade.
“Most of the gains (and losses) from trade tend to occur immediately following a trade (see Barber, Lee, Liu, and Odean (2009), Coval, Hirshleifer, and Shumway (2005), Grinblatt, Keloharju, and Linnainmaa (2012)).”
From The cross-section of speculator skill: Evidence from day trading (2014) · cites this paper as Barber, Lee, Liu, and Odean (2009)
The likely counterparties to profitable trades by heavy and previously successful day traders are less active day traders and individual investors in general.
“The likely counterparties to profitable trades by heavy and previously successful day traders are less active day traders (see Tables 1 and 2) and individual investors in general (see Barber, Lee, Liu, and Odean (2009)).”
From The cross-section of speculator skill: Evidence from day trading (2014) · cites this paper as Barber, Lee, Liu, and Odean (2009)
The aggregate losses of individual investors in Taiwan from 1995 to 1999 exceed two percent of annual Gross Domestic Product in Taiwan.
“Barber, Lee, Liu, and Odean (2009), using complete transaction data for the Taiwan market from 1995 to 1999, document that the aggregate losses of individual investors exceed two percent of annual Gross Domestic Product in Taiwan.”
From The cross-section of speculator skill: Evidence from day trading (2014) · cites this paper as Barber, Lee, Liu, and Odean (2009)
Cites
Common risk factors in the returns on stocks and bonds
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Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors
Barber, B. M., & Odean, T. (2000) · The Journal of Finance · doi:10.1111/0022-1082.00226 · Cited by 3,955 · see citing works
Self-citationOdean, T. (1999) · American Economic Review · doi:10.1257/aer.89.5.1279 · Cited by 2,247 · see citing works
Equity Portfolio Diversification
Goetzmann, W. N., & Kumar, A. (2008) · Review of Finance · doi:10.1093/rof/rfn005 · Cited by 1,222 · see citing works
Cross-Cultural Variations in Probability Judgment Accuracy: Beyond General Knowledge Overconfidence?
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Linnainmaa, J. T. (2003) · doi:10.2139/ssrn.472182 · Cited by 29 · cited 1× · see citing works
“For studies of the performance of individual investors, see Schlarbaum, Lewellen, and Lease (1978a, 1978b); Odean (1999); Barber and Odean (2000, 2001); Grinblatt and Keloharju (2000); Goetzmann and Kumar (forthcoming); and Linnainmaa (2003a, 2003b) .”
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Do retail trades move markets?
Barber, B. M., Odean, T., & Zhu, N. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhn035 · Cited by 903 · see citing works
Self-citationRetail Trading in Options and the Rise of the Big Three Wholesalers
BRYZGALOVA, S., PAVLOVA, A., & SIKORSKAYA, T. (2023) · The Journal of Finance · doi:10.1111/jofi.13285 · Cited by 160 · see citing works
Why do (some) households trade so much?
Linnainmaa, J. T. (2011) · Review of Financial Studies · doi:10.1093/rfs/hhr009 · Cited by 141 · see citing works
The cross-section of speculator skill: Evidence from day trading
Barber, B. M., Lee, Y.-T., Liu, Y.-J., & Odean, T. (2014) · Journal of Financial Markets · doi:10.1016/j.finmar.2013.05.006 · Cited by 112 · see citing works
Self-citationWhat’s mine is mine and what’s yours is mine: The Dark Triad and gambling with your neighbor’s money
Jones, D. N. (2013) · Journal of Research in Personality · doi:10.1016/j.jrp.2013.04.005 · Cited by 103 · see citing works
- Authors
- Barber, B. M., Lee, Y.-T., Liu, Y.-J., & Odean, T.
- Affiliations
- University of California System (US)
- National Chengchi University (TW)
- Peking University (CN)
- Corresponding author
- Barber, Brad M.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2008-04-19
- Volume
- 22
- Issue
- 2
- Pages
- 609-632
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W3123386791
- Cited by
- 953
- References
- 7
- Citations by year
- 2026: 38 · 2025: 41 · 2024: 74 · 2023: 68 · 2022: 63 · 2021: 60 · 2020: 52 · 2019: 51 · 2018: 64 · 2017: 49 · 2016: 48 · 2015: 50 · 2014: 82 · 2013: 45 · 2012: 60
- FWCI
- 61.15
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Review of Financial Studies (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Business, Management and Accounting › Accounting › Financial Analysis and Corporate Governance
- Keywords
- institutional investors, foreign institutional investors, market microstructure, trade costs, Taiwan stock market
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