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

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.

*

We are grateful to the discount brokerage firm that provided us with the data for this study and grateful to Paul Thomas, David Moore, Paine Webber, and the Gallup Organization for providing survey data. We appreciate the comments of Diane Del Guercio, David Hirshleifer, Andrew Karolyi, Timothy Loughran, Edward Opton Jr., Sylvester Schieber, Andrei Shleifer, Martha Starr-McCluer, Richard Thaler, Luis Viceira, and participants at the University of Alberta, Arizona State University, INSEAD, the London Business School, the University of Michigan, the University of Vienna, the Institute on Psychology and Markets, the Conference on Household Portfolio Decision-making and Asset Holdings at the University of Pennsylvania, and the Western Finance Association Meetings. All errors are our own. Terrance Odean can be reached at [phone] or ; Brad Barber can be reached at [phone] or .