Trading Behavior And Performance Study On Stock Market Investors

The trading performance of stock markets participators has long been oneof the focuses of the international academic researches, because there are somany models and practical problems are relevant to this issue. This paperintends to shed some light on the performance of investors' trading behaviorsin Chinese stock markets, based on a detailed trading database that is rarelymet in similar researches. Using 4 distinct measures of the performance of theinvestors, the trading performances of individual and institutional investorsare measured. Rational expectation framework of Grossman and Stiglitz (1980)cannot explain the performance of investors, while the results comply with theoverconfidence theory developed by Gervais and Odean (2001) that says theinvestors' overconfidence of their trading abilities would lead to excessivetrading and losses. Before trading cost, the individual investors' trading is notprominent;while after cost, they have negative returns. In contrast,institutional investors have positive returns no matter before cost or after cost.Individual investors earn less return than institutions, and small investors earnless return than big investors. There are weak evidences that small investorsprefer small-cap and growth stocks while their big counterparts prefer big-capand value stocks. The losses small investors have achieved could be at leastpartly imputed to their excessive trading behaviors. We forecast that ifindividual investors decrease their trading times per year, they would increasetheir investment profits, or diminish their trading losses. But for institutionalinvestors, the frequency of trading seems to have no influence on theirperformance. They trade more, almost everyday, but they could realizepositive returns.