Boys will be Boys: Gender, Overconfidence, and Common Stock Investment

TLDR

Theoretical models and psychological research suggest that overconfident investors trade excessively, with men exhibiting greater overconfidence than women, implying men should trade more than women. We test this prediction by partitioning investors on gender. Using account data for over 35,000 households from a large discount brokerage, we analyze the common stock investments of men and women from February 1991 through January 1997. Men trade 45 percent more than women, and their higher trading activity reduces net returns by 2.65 percentage points per year compared to 1.72 percentage points for women.

Abstract

Theoretical models predict that overconfident investors trade excessively. We test this prediction by partitioning investors on gender. Psychological research demonstrates that, in areas such as finance, men are more overconfident than women. Thus, theory predicts that men will trade more excessively than women. Using account data for over 35,000 households from a large discount brokerage, we analyze the common stock investments of men and women from February 1991 through January 1997. We document that men trade 45 percent more than women. Trading reduces men's net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women.