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Rationalizing Trading Frequency and Returns

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1725-6704
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EUI ECO; 2010/25
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BONAPARTE, Yosef, COOPER, Russell, Rationalizing Trading Frequency and Returns, EUI ECO, 2010/25 - https://hdl.handle.net/1814/14058
Abstract
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.
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