Rationalizing Trading Frequency and Returns: Maybe Trading is Good for You
Barber and Odean (2000) find that households who trade more have a lower net return than others and attribute this pattern to irrationality, particularly overconfidence. In contrast, we find that household financial choices generated from a dynamic optimization problem with rational agents and portfolio adjustment costs can reproduce the observed pattern of households with large turnover having lower net returns. Various forms of irrationality, modeled as beliefs about income and return processes that are not data based, do not improve the ability of the baseline model to explain these turnover and net returns patterns.
-
-
Copy CitationYosef Bonaparte, Russell Cooper, and Mengli Sha, "Rationalizing Trading Frequency and Returns: Maybe Trading is Good for You," NBER Working Paper 25838 (2019), https://doi.org/10.3386/w25838.
-
Related
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
