Trading is hazardous to your wealth: The common stock investment performance of individual investors

Individual investors who hold common stocks directly pay a tremendous perfo rmance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earn an an nual return of 11.4 percent, while the market returns 17.9 percent. The ave rage household earns an annual return of 16.4 percent, tilts its common sto ck investment toward high-beta, small, value stocks, and turns over 75 perc ent of its portfolio annually. Overconfidence can explain high trading leve ls and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.