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.
Using account data for over 35,000 households from a large discount brokerage, Barber and Odean analyze the common stock investments of men and women from February 1991 through January 1997. They 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.