Rationalizing Trading Frequency and Returns
Title: Rationalizing Trading Frequency and Returns
Series/Number: EUI ECO; 2010/25
Barber and Odean (2000) study the relationship between trading frequency and returns. 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.
Type of Access: openAccess