E
c
B
D
Contents lists available at ScienceDirect
Journal of Economic Behavior & Organization
journal homepage: www.elsevier.com/locate/jebo
xperts online: An analysis of trading activity in a public Internet
hat room
ruce Mizrach ∗, Susan Weerts
epartment of Economics, Rutgers University, New Brunswick, NJ 08901, United States
r t i c l e
i n f o
rticle history:
eceived 25 October 2006
eceived in revised form 2 February 2009
ccepted 4 February 2009
vailable online xxx
EL classification:
14
20
eywords:
ehavioral finance
ay trading
amiliarity bias
isposition effect
xperts
a b s t r a c t
We analyze the trading activity in an Internet chat room over a 4-year period. The data set
contains nearly 9000 trades from 676 traders. We find these traders are more skilled than
retail investors analyzed in other studies. 55 percent make profits after transaction costs,
and they have statistically significant ˛ s of 0.17 percent per day after controlling for the
Fama–French factors and momentum. Traders hold their winners 25 percent longer than
their losers. 42 percent trade both long and short, with equal success rates, and almost
double the profit per trade when short. The estimates show a strong influence from other
traders, with a buy (sell) order 40.7 percent more likely to be of the same sign if there has
been a recent post. Traders improve their skill over time, earning an extra $189 per month
for each year of trading experience. They also gain expertise in trading particular stocks.
Traders who raise their Herfindahl index by 0.1 raise their profitability by $46 per trade.
© 2009 Elsevier Ltd. All rights reserved.
. Introduction
The individual investor has been carefully scrutinized in the growing literature on behavioral finance. These studies
ypically document the underperformance of the do-it-yourself trader. Barber and Odean (2000) find, in a large sample of
ouseholds from a major discount stock broker, annual average returns trail the market benchmarks by nearly 200 basis
oints. The most active quintile of trader