Men trade more and lose more money than women. The more trades done, the higher the losses. In this benchmark behavioural finance study, Brad Barber and Terrance Odean from the University of California suggest why.

How was the study conducted?

Using account data from over 35,000 households from a single large discount brokerage facility, the authors analyzed the stock investments of both men and women between February 1991 and January 1997.

What did the results reveal?

• Men tended to trade more than women, in fact 45% more, and they held their stocks for a shorter time.
  
  
• Trading itself was linked to poorer financial performance. So that while women were not necessarily better at trading than men, because they did less of it, they lost less money.
  
  
• Trading reduced the men's net returns by 2.65 percentage points per year while women's trading lost them 1.72 percentage points per year.
  
  
• Young men and those with greater personal wealth tended to hold more volatile portfolios than older, less well-off men. The gender divide was greatest for singles.

Why do men trade more than women?

Men are more overconfident than women, the authors point out, and trading in large volumes by men was due to this overconfidence. Overconfident investors overestimate the precision of their knowledge, and they also overestimate the probability that their personal assessments of a securities value are more accurate than the assessments of others.

"Rational investors trade only if the expected gains exceed transaction costs. Overconfident investors overestimate the precision of their information and thereby the expected gains of trading" the authors explain.

Women are overconfident, too, just less so than men. In fact they found that; "married couples influence each other's investment decisions and thereby reduce the effects of gender differences in overconfidence."

Do the results apply to other professions?

Overconfidence in men has been found in other professions including medicine, investment banking, law and management. The more "masculine" and difficult the task, the more men appear to be overconfident.

Barber B. and Odean T. Boys Will be Boys: Gender, Overconfidence and Common Stock Investment. The Quarterly Journal of Economics 2001; 261-292