The Performance and Persistence of Individual Investors:Rational Agents or Tulip Maniacs?
Maastricht University and NETSPAR
Maastricht University and NETSPARThis Draft: October 4, 2007
We study the impact of derivatives trading on the investment performance of individual investorsand examine whether investor performance is persistent. Using a sample of more than 68,000accounts and nine million trades, we find that the average investor earns negative gross and netalphas, mainly because of substantial losses on derivatives investments. The underperformance of derivatives traders is due to bad market timing that results from overreaction to past stock marketmovements. We also find strong evidence of performance persistence among individualinvestors. Women are more successful investors than men and persistent winners hold largeraccounts with lower turnover.
Corresponding author: Mathijs Cosemans, Maastricht University, P.O. Box 616, 6200 MD Maastricht, Netherlands,e-mail: M.Cosemans@finance.unimaas.nl. We thank the Internet brokerage firm for providing most of the data forthis study and NYSE Euronext Amsterdam for providing data on AEX index options. We are also grateful to AndersAnderson, Sirio Aramonte (EFA discussant), Andriy Bodnaruk, Rik Frehen, Markus Glaser, Andrei Simonov,Martin Weber and seminar participants at Maastricht University, the Stockholm School of Economics, the Universityof Sankt Gallen, the University of Mannheim, the 2007 European Finance Association meetings in Ljubljana, the2007 Erasmus University Finance Day in Rotterdam, the 2007 EFMA meetings in Vienna and the 2007 FMA Europedoctoral seminar in Barcelona for helpful comments and suggestions.