Online Investors: Do the Slow Die First?

We analyze 1,607 investors who switched from phone-based toonline trading during the 1990s. Those who switch to onlinetrading perform well prior to going online, beating the marketby more than 2% annually. After going online, they trade moreactively, more speculatively, and less profitably than before—laggingthe market by more than 3% annually. Reductions in market frictions(lower trading costs, improved execution speed, and greaterease of access) do not explain these findings. Overconfidence—augmentedby self-attribution bias and the illusions of knowledge andcontrol—can explain the increase in trading and reductionin performance of online investors.