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Who is the more overconfident trader? Individual vs. institutional investors
Authors:Wen-I Chuang  Rauli Susmel
Institution:a Department of Finance, National Taiwan University, No. 1, Section 4, Roosevelt Road, Taipei 10617, Taiwan
b Department of Finance, University of Houston, Houston, TX 77204-6282, USA
Abstract:Guided by the Gervais and Odean (2001) overconfident trading hypothesis, we comprehensively investigate the trading behavior of individual vs. institutional investors in Taiwan in an attempt to identify who is the more overconfident trader. Conditional on the various states of the market, on market volatility, and on the risk level of the securities they trade, we find that both individual and institutional investors trade more aggressively following market gains in bull markets, in up-market states, in up-momentum market states, and in low-volatility market states and that only individual investors trade more in riskier securities following market gains. More importantly, we find that individual investors trade more aggressively following market gains in the three conditional states of the market and in high-volatility market states than institutional investors. Also, individual investors trade more in relatively riskier securities following gains than institutional investors. These findings provide evidence that individual investors are more overconfident traders than institutional investors.
Keywords:C32  G10
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