Brad M. Barber
Professor of Management
Research Expertise: Finance, investments and financial markets, corporate financial policy, market for corporate control, investor psychology
Consulting: Litigation support for financial fraud, antitrust, lost profits cases
Professor Brad Barber is an authority on investor psychology, stock analyst recommendations, online trading and mutual fund performance. He has done extensive research on the effect of expenses on money flowing into mutual funds, gender-related overconfidence in stock trading, the impact of coordinated trading by individual investors, and how active equity trading is hazardous to individual investor wealth. His research has been covered extensively in the media, including Business Week, Time, the Wall Street Journal and the New York Times, and he has appeared on ABC News, NBC Nightly News, CNN, MSNBC and CNBC.
Barber has published frequently in leading academic journals, including the Journal of Finance, the Journal of Financial Economics, Review of Financial Studies, the Journal of Political Economy, Quarterly Journal of Economics, American Sociological Review, the Journal of Financial and Quantitative Analysis, and the Financial Analyst Journal.
Barber teaches courses in investment analysis and corporate financial policy. He is a regular speaker at academic and industry conferences.
Room 3218
Do (Some) University Endowments Earn Alpha?
Using data from 1991 to 2010, U.C. Davis Professors Brad Barber and Guojun Wang analyze educational endowment returns using simple style attribution models pioneered by Sharpe (1992). When they restrict the attribution model to public stock and US bond benchmarks they find that the average endowment earns an alpha close to zero, that the public stock/bond benchmarks explain 99% of the time-series variation in the return of the average endowment, and that the attribution model yields sensible estimates of the typical stock bond allocations (roughly 60% stock and 40% bonds).
Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors
Journal of Finance, 2000
Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that traded most earned an annual return of 11.4 percent, while the market returned 17.9 percent. The average household earned an annual return of 16.4 percent, tilted its common stock investment toward high-beta, small, value stocks, and turned over 75 percent of its portfolio annually.
Is the Aggregate Investor Reluctant to Realise Losses? Evidence from Taiwan
European Financial Management, June 2007
In this study, Professor Brad Barber and co-authors Terrance Odean from U.C. Berkeley, and Yi-Tsung Lee and Yu-Jane Liu from National Chengchi University ask whether the typical investor and the aggregate investor exhibit a bias known as the disposition effect, which is the tendency to sell investments that are held for a profit at a faster rate than investments held for a loss.
The Behavior of Individual Investors
In this study, Professor Brad Barber and co-author Terrance Odean from U.C. Berkeley provide an overview of research on individual investor stock trading behavior.
Eighth Annual Napa Conference on Financial Markets Research
The Graduate School of Management continued its partnership with the Financial Management Association International to co-host the Eighth Annual Napa Conference on Financial Markets Research from May 13–18, at the Cakebread Winery in Napa Valley.
Thirty top scholars—from Rice University, New York University, Northwestern University, University of Michigan and other leading institutions—discussed subjects ranging from the effects risk taking has on financial conglomerates and the financial crisis of 2008 to how journalists impact asset prices.
Seller’s Remorse Leads to Irrational Stock Buybacks
Investors are far from rational: They are often guided by emotions such as regret, disappointment, pride and contentment rather than an objective assessment of the facts.
Professor Brad Barber, a leading expert on investor psychology, joined with Terrance Odean of UC Berkeley’s Haas School of Business and Michal Strahilevitz of the Ageno School of Business at Golden Gate University to investigate how individual traders’ market experiences affect their purchasing behavior.
Investors Behaving Badly: Overconfidence
This article cites Professor Brad Barber’s research about investor overconfidence. From 1991-1996, Barber and co-author Terrance Odean set upon a study of more than 66,000 households with brokerage accounts to look for a pattern of overconfidence in common stock purchases. Their hypothesis was that overconfident investors would tend to turn over their portfolios more frequently than those who were less confident.
Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment
Quarterly Journal of Economics, 2000
It’s not what a man don’t know that makes him a fool, but what he does know
that ain’t so.
–Josh Billings, nineteenth century American humorist
Theoretical models predict that overconfident investors trade excessively. Brad Barber and Terrance Odean 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.
Too Many Cooks Spoil the Profits: Investment Club Performance
Financial Analyst Journal, 2000
In this study, Professor Brad M. Barber and co-author Terrance Odean from U.C. Berkeley report their common stock investment performance analysis from 166 investment clubs from February 1991 through January 1997.
They found that the average club tilted its common stock investment toward high-beta, small-cap growth stocks and turned over 65 percent of its portfolio annually. The average club lagged the performance of a broad-based market index and the performance of individual investors. Moreover, 60 percent of the clubs underperformed the index.
The Consumer Financial Protection Bureau Should Tell Investors to Trade Less
This article about the new Consumer Financial Protection Bureau cites Professor Brad Barber’s 2000 study “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” in which he and co-author Terrance Odean from U.C. Berkeley looked at 10,000 investor accounts and found that the average retail trading decision is usually ‘wrong’ over the course of the following year.
Risk Bites Back: Lessons Learned from the Harvard Endowment
The success of Harvard’s endowment in recent decades helped popularized a new approach to university endowment investing that generated enormous gains. But when the 2008 financial crisis hit, Harvard’s fund took a bath and exposed weaknesses in its asset management approach. Harvard’s experience offers lessons for financial advisors increasingly interested in alternative investments. Professor Brad Barber’s latest research is cited in the article.
Alternatives Explain Endowment Superiority, Academic Paper Says
Asset allocation and investing in alternatives more specifically are the main reasons for success at elite endowments, according to a new paper co-written by Professor Brad M. Barber and Guojun Wang of UC Davis.
Tight Budgets, Wild Markets Hurt Investment Clubs
Not that long ago, it seemed like everyone belonged to an investment club. People would gather at a friend’s house, share a few bottles of merlot and toast their soaring investments in Cisco and JDS Uniphase. And now? Not so much. In this article, Professor Brad Barber’s study “Too Many Cooks Spoil the Profits” is cited, suggesting that getting a bunch of investors together doesn’t tend to improve returns.
Don’t Blink! The Hazards of Confidence
This article cites Professor Brad Barber’s recent research showing that, on average, the most active traders had the poorest results, while those who traded the least earned the highest returns. In another paper, “Boys Will Be Boys,” Barber and colleague Terry Odean reported that men act on their useless ideas significantly more often than women do, and that as a result women achieve better investment results than men.
Behavior of Individual Investors: To Err Is Human
This article reports Professor Brad Barber’s latest research, conducted with Terrance Odean of UC Berkeley’s Haas School of Business, which finds that individual investors do not behave rationally, as economic theory would suggest. The bottom line: “Investors who don’t know they perform poorly end up believing that they’re doing well — the incompetent are unaware.”
Trading the World Away … the Rot at the Core of Markets
Day traders generally trade too much and take too many risks.
This article cites a 2006 study led by Professor Brad Barber that analyzed the trading record for Taiwan’s stock exchange for four years in the 1990s. They found that, in a typical six-month period, “more than eight out of 10 day traders lose money” and that total losses were staggering: 2.2 percent of Taiwanese GDP annually.
Awards
Why Market Timing Is a Joke
This Motley Fool article mentions research by Professor Brad Barber and Terrance Odean of UC Berkeley that concludes that “trading is hazardous to your wealth.”
Don’t Panic, Hang in There, Advisers Tell Investors
For many investors watching their retirement accounts, it’s nerve-wracking. Many are bailing out of stocks and into bonds. Some are grasping for gold as a tangible nugget of safety. Others are wondering if they’re better off in CDs and money-market funds. Regardless, the advice from most investment advisers is consistently the same: Don’t panic. Hang in there. Brad Barber is cited in this article discussing why the long-term view is most important when it comes to investment planning.
Anxiety the Norm for Younger Investors
The notion that investing can make you rich looks laughable when you see stock markets tank as they have in the past two sessions. And for the youngest of investors, who have already experienced the tech bubble burst in 2000 and the 2008 market crash, bewilderment and anxiety has become more the norm than the exception. Professor Brad Barber is cited, explaining the fears and motivations behind young investors.