Does trading too much cost you? What Barber & Odean found
"The more I trade, the more I earn" does not always hold. A frequently cited study looked at how trading activity relates to returns.
This page covers what it found, its limits, and how to check your own habits.
What the study found
In a 2000 paper in the Journal of Finance, Brad Barber and Terrance Odean analysed about 66,000 US discount-broker accounts from 1991 to 1996. The most active group earned about 11.4% a year, while the market earned about 17.9% and the average account about 16.4%. The authors point to overconfidence and trading costs as part of the reason.
Limits of the study
- It uses old US data, not today's Hong Kong market.
- It is observational, and later papers (for example Bonaparte and Cooper) read the results differently.
- Treat it as a reminder, not as a certain rule.
What you can do
- Count how many times you traded in the last three months.
- Before each trade, check it against your written horizon, limit and reason.
- If you have no written reason, write one first, then decide whether to act.
FAQ
Does trading more always lose?
No. The study only shows the most active group did worse in that sample. It is not a guarantee.
Is the study still valid?
It is old and read in different ways. Use it only as a reminder.
Is this investment advice?
No. For education only, not investment advice.
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