How Well Do Individual Investors Perform?

810 WordsAug 1, 20164 Pages
Week2 question 1. How well do individual investors perform? Is the average performance consistent with your personal experience or expectation? According to the articles, a statement had been made that the average individual investor underperforms the market for not taking the cost into consideration. But the performances would be various across the time horizon. In the long-horizon, the underperformance would exist even regardless the tax effect or frequently trading. However, in the short horizon, the individual investor could get the return from the situation contrary to the long run. The performance is inconsistent with the theory. Based on the efficient market hypothesis, all investors are rational, they would choose the same portfolios with the same risk to gain the excess return. Under this hypothesis, the market would work efficiently. However, the transaction cost as well as the tax payment need to be considered in the real situation. However, it consistent with my personal experience. People would easily trade frequently because of the market change. Therefore, the transaction fees of frequently trading would eventually became a large proportion of the cost which would lead to the underperformance of market. 2. Do you think institutional investors suffer from cognitive biases? Explain why or why not. Yes. The institutional investors might suffer from the cognitive biases. Compared to the individual investors, the institutional investors as the skilled investors
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