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Rev Fin 2002; 15:455-488
© 2002 the Society for Financial Studies

Online Investors: Do the Slow Die First?

Brad M. Barber
University of California, Davis

Terrance Odean
University of California, Berkeley

Abstract

We analyze 1,607 investors who switched from phone-based to online trading during the 1990s. Those who switch to online trading perform well prior to going online, beating the market by more than 2% annually. After going online, they trade more actively, more speculatively, and less profitably than before—lagging the market by more than 3% annually. Reductions in market frictions (lower trading costs, improved execution speed, and greater ease of access) do not explain these findings. Overconfidence—augmented by self-attribution bias and the illusions of knowledge and control—can explain the increase in trading and reduction in performance of online investors.


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