Rationalizing Trading Frequency and Returns
19 Pages Posted: 4 Jun 2010 Last revised: 13 Apr 2023
Date Written: May 2010
Abstract
Barber and Odean (2000) study the relationship between trading frequency andreturns. 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.
Suggested Citation: Suggested Citation
Bonaparte, Yosef and Cooper, Russell W., Rationalizing Trading Frequency and Returns (May 2010). NBER Working Paper No. w16022, Available at SSRN: https://ssrn.com/abstract=1612615
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