Boys will be Boys:

Gender, Overconfidence, and Common Stock Investment

Brad M. Barber* and Terrance Odean*

First Draft: September 1998

This Draft: September 1999

*
We are grateful to the discount brokerage firm that provided us with the data for this study. We appreciate
the comments of David Hirshleifer, Andrew Karolyi, Edward Opton Jr., Sylvester Schieber, Martha
Starr-McCluer, Richard Thaler and seminar participants at the University of Alberta, Arizona State
University, INSEAD, the London Business School, the University of Michigan, the University of
Vienna, the Institute on Psychology and Markets, and the Conference on Household Portfolio Decision-
making and Asset Holdings at the University of Pennsylvania. All errors are our own. Terrance Odean
can be reached at (530) 752-5332 or [email protected]; Brad Barber can be reached at (530) 752-0512
or [email protected].
 Boys will be Boys:
Gender, Overconfidence, and Common Stock Investment

Abstract

Theoretical models predict that overconfident investors trade excessively. We test this
prediction by partitioning investors on gender. Psychological research demonstrates that,
in areas such as finance, men are more overconfident than women. Thus, theory predicts
that men will trade more excessively than women. Using account data for over 35,000
households from a large discount brokerage, we analyze the common stock investments
of men and women from February 1991 through January 1997. We document that men
trade 45 percent more than women. Trading reduces men’s net returns by 2.65
percentage points a year as opposed to 1.72 percentage points for women.
 It’s not what a man don’t know that makes him a fool,
but what he does know that ain’t so.
Josh Billings, 19th century American humorist

It is difficult to reconcile the volume of trading observed in equity markets with

the trading needs of rational investors. Rational investors make periodic contributions and
withdrawals from their investment portfolios, rebalance their portfolios, and trade to
minimize their taxes. Those possessed of superior information may trade speculatively,
though rational speculative traders will generally not choose to trade with each other. It is
unlikely that rational trading needs account for a turnover rate of 76 percent on the New
York Stock Exchange in 1998.1

We believe there is a simple and powerful explanation for high levels of trading
on financial markets: overconfidence. Human beings are overconfident about their
abilities, their knowledge, and their future prospects. Odean [1998] shows that
overconfident investors trade more than rational investors and that doing so lowers their
expected utilities. Greater overconfidence leads to greater trading and to lower expected
utility.

A direct test of whether overconfidence contributes to excessive market trading is

to separate investors into those more and those less prone to overconfidence. One can
then test whether more overconfidence leads to more trading and to lower returns. Such a
test is the primary contribution of this paper.

Psychologists find that in areas such as finance men are more overconfident than
women. This difference in overconfidence yields two predictions: men will trade more
than women and the performance of men will be hurt more by excessive trading than the
performance of women. To test these hypotheses, we partition a data set of position and
trading records for over 35,000 households at a large discount brokerage firm into
accounts opened by men and accounts opened by women. Consistent with the

1
predictions of the overconfidence models, we find that the average turnover rate of
common stocks for men is nearly one and a half times that for women. While both men
and women reduce their net returns through trading, men do so by 0.94 percentage points
more a year than do women.

The differences in turnover and return performance are even more pronounced
between single men and single women. Single men trade 67 percent more than single
women thereby reducing their returns by 1.44 percentage points more than do single
women.

The remainder of this paper is organized as follows. We motivate our test of

overconfidence in section I. We discuss our data and empirical methods in section II.
Our main results are presented in section III. We discuss competing explanations for our
results in section IV and make concluding remarks in section V.

I. A Test of Overconfidence

A. Overconfidence and Trading on Financial Markets

Studies of the calibration of subjective probabilities find that people tend to
overestimate the precision of their knowledge [Alpert and Raiffa 1982; Fischhoff, Slovic
and Lichtenstein 1977; see Lichtenstein, Fischhoff, and Phillips 1982 for a review of the
calibration literature]. Such overconfidence has been observed in many professional
fields. Clinical psychologists [Oskamp 1965], physicians and nurses, [Christensen-
Szalanski and Bushyhead 1981; Baumann, Deber, and Thompson 1991], investment
bankers [Staël von Holstein 1972], engineers [Kidd 1970], entrepreneurs [Cooper, Woo,
and Dunkelberg 1988], lawyers [Wagenaar and Keren 1986], negotiators [Neale and
Bazerman 1990], and managers [Russo and Schoemaker 1992] have all been observed to
exhibit overconfidence in their judgments. (For further discussion, see Lichtenstein,
Fischhoff, and Phillips [1982] and Yates [1990].)

1
New York Stock Exchange Fact Book, 1998, p.91.

2
 Overconfidence is greatest for difficult tasks, for forecasts with low predictability,
and for undertakings lacking fast, clear feedback [Fischhoff, Slovic, and Lichtenstein,
1977; Lichtenstein, Fischhoff, and Phillips 1982; Yates 1990; Griffin and Tversky 1992].
Selecting common stocks that will outperform the market is a difficult task. Predictability
is low; feedback is noisy. Thus, stock selection is the type of task for which people are
most overconfident.

Odean [1998] develops models in which overconfident investors overestimate the

precision of their knowledge about the value of a financial security.2,3 They overestimate
the probability that their personal assessments of the security’s value are more accurate
than the assessments of others. Thus overconfident investors believe more strongly in
their own valuations, and concern themselves less about the beliefs of others. This
intensifies differences of opinion. And differences of opinion cause trading [Varian 1989;
Harris and Raviv 1993]. Rational investors only trade and only purchase information
when doing so increases their expected utility (e.g., Grossman and Stiglitz [1980]).
Overconfident investors, on the other hand, lower their expected utility by trading too
much; they hold unrealistic beliefs about how high their returns will be and how precisely
these can be estimated; and they expend too many resources (e.g., time and money) on
investment information [Odean 1998]. Overconfident investors also hold riskier
portfolios than do rational investors with the same degree of risk-aversion [Odean 1998].

Barber and Odean [1999] and Odean [1999] test whether investors decrease their
expected utility by trading too much. Using the same data analyzed in this paper, Barber
and Odean [1999] show that after accounting for trading costs, individual investors
underperform relevant benchmarks. Those who trade the most realize, by far, the worst
performance. This is what the models of overconfident investors predict. With a different

2
Other models of overconfident investors include De Long, Shleifer, Summers, and Waldmann [1991],
Benos [1998], Kyle and Wang [1997], Daniel, Hirshleifer, and Subramanyam [1998], Gervais and Odean
[1998], and Caballé and Sákovics [1998]. Kyle and Wang [1997] argue that when traders compete for
duopoly profits, overconfident traders may reap greater profits. However, this prediction is based on
several assumptions that do not apply to individuals trading common stocks.
3
Odean [1998] points out that overconfidence may result from investors overestimating the precision of
their private signals or, alternatively, overestimating their abilities to correctly interpret public signals.

3
data set, Odean [1999] finds that the securities individual investors buy subsequently
underperform those they sell. When he controls for liquidity demands, tax-loss selling,
rebalancing, and changes in risk-aversion, investors’ timing of trades is even worse. This
result suggests that not only are investors too willing to act on too little information, but
they are too willing to act when they are wrong.

These studies demonstrate that investors trade too much and to their detriment.
The findings are inconsistent with rationality and not easily explained in the absence of
overconfidence. Nevertheless, overconfidence is neither directly observed nor
manipulated in these studies. A yet sharper test of the models that incorporate
overconfidence is to partition investors into those more and those less prone to
overconfidence. The models predict that the more overconfident investors will trade more
and realize lower average utilities. To test these predictions we partition our data on
gender.

B. Gender and Overconfidence

While both men and women exhibit overconfidence, men are generally more
4
overconfiGHQW WKDQ ZRPHQ >/XQGHEHUJ )R[ DQG 3XQüRFKD  @ . Gender differences
in overconfidence are highly WDVN GHSHQGHQW >/XQGHEHUJ )R[ DQG 3XQüRFKD  @

Deaux and Ferris [1977] write “Overall, men claim more ability than do women, but this
difference emerges most strongly on … masculine task[s].” Several studies confirm that
differences in confidence are greatest for tasks perceived to be in the masculine domain
[Deaux and Emswiller 1994; Lenney 1977; Beyer and Bowden 1997]. Men are inclined
to feel more competent than women do in financial matters [Prince 1993]. Indeed, casual
observation reveals that men are disproportionately represented in the financial industry.
We expect, therefore, that men will generally be more overconfident about their ability to
make financial decisions than women.

4
While Lichtenstein and Fishhoff [1981] do not find gender differences in calibration of general
knowlHGJH /XQGHEHUJ )R[ DQG 3XQüRFKD  >@ DUJXH WKDW WKLV LV EHFDXVH JHQGHU GLIIHUHQFHV LQ
calibration are strongest for topics in the masculine domain.

4
 Additionally, Lenney [1977] reports that gender differences in self-confidence
depend on the lack of clear and unambiguous feedback. When feedback is “unequivocal
and immediately available, women do not make lower ability estimates than men.
However, when such feedback is absent or ambiguous, women seem to have lower
opinions of their abilities and often do underestimate relative to men.” Feedback in the
stock market is ambiguous. All the more reason to expect men to be more confident than
women about their ability to make common stock investments.

Gervais and Odean [1998] develop a model in which investor overconfidence

results from self-serving attribution bias. Investors in this model infer their own abilities
from their successes and failures. Due to their tendency to take too much credit for their
successes, they become overconfident. Deaux and Farris [1977], Meehan and Overton
[1986], and Beyer [1990] find that the self-serving attribution bias is greater for men than
for women. And so men are likely to become more overconfident than women.

The previous study most like our own is Lewellen, Lease, and Schlarbaum’s
[1977] analysis of survey answers and brokerage records (from 1964 through 1970) of
972 individual investors. Lewellen et. al. report that men spend more time and money on
security analysis, rely less on their brokers, make more transactions, believe that returns
are more highly predictable, and anticipate higher possible returns than do women. In all
these ways, men behave more like overconfident investors than do women.

In summary, we have a natural experiment to (almost) directly test theoretical

models of investor overconfidence. A rational investor only trades if the expected gain
exceeds the transactions costs. An overconfident investor overestimates the precision of
his information and thereby the expected gains of trading. He may even trade when the
true expected net gain is negative. Since men are more overconfident than women, this
gives us two testable hypotheses:
H1: Men trade more than women.
H2: By trading more, men hurt their performance more than do women.

5
It is these two hypotheses that are the focus of our inquiry. 5

II. Data and Methods

A. Household Account and Demographic Data

Our main results focus on the common stock investments of 37,664 households
for which we are able to identify the gender of the person who opened the household’s
first brokerage account. This sample is compiled from two data sets.

Our primary data set is information from a large discount brokerage firm on the
investments of 78,000 households for the six years ending in December 1996. For this
period, we have end-of-month position statements and trades that allow us to reasonably
estimate monthly returns from February 1991 through January 1997. The data set
includes all accounts opened by the 78,000 households at this discount brokerage firm.
Sampled households were required to have an open account with the discount brokerage
firm during 1991. Roughly half of the accounts in our analysis were opened prior to
1987, while half were opened between 1987 and 1991. On average, men (women)
opened their first account at this brokerage 4.7 (4.3) years before the beginning of our
sample period. During the sample period, men’s (women’s) accounts held common
stocks for 58 (59) months on average. The median number of months men (women) held
common stocks is 70 (71).

In this research, we focus on the common stock investments of households. We

exclude investments in mutual funds (both open- and closed-end), American depository
receipts (ADRs), warrants, and options. Of the 78,000 sampled households, 66,465 had
positions in common stocks during at least one month; the remaining accounts either held
cash or investments in other than individual common stocks. The average household had
approximately two accounts, and roughly 60 percent of the market value in these
accounts was held in common stocks. These households made over 3 million trades in all

5
Overconfidence models also imply that more overconfident investors will hold riskier portfolios. In
Section III, we present evidence that men hold riskier common stock portfolios than women. However,

6
securities during our sample period; common stocks accounted for slightly more than 60
percent of all trades. The average household held 4 stocks worth $47,000 during our
sample period, though each of these figures is positively skewed.6 The median household
held 2.6 stocks worth $16,000. In aggregate, these households held more than $4.5
billion in common stocks in December 1996.

Our secondary data set is demographic information compiled by Infobase Inc. (as
of June 8, 1997) and provided to us by the brokerage house. These data identify the
gender of the person who opened a household’s first account for 37,664 households, of
which 29,659 (79 percent) had accounts opened by men and 8,005 (21 percent) had
accounts opened by women. In addition to gender, Infobase provides data on marital
status, the presence of children, age, and household income. We present descriptive
statistics in Table I, Panel A. These data reveal that the women in our sample are less
likely to be married and to have children than men. The mean and median ages of the
men and women in our sample are roughly equal. The women report slightly lower
household income, though the difference is not economically large.

In addition to the data from Infobase, we also have a limited amount of self-
reported data collected at the time each household first opened an account at the
brokerage (and not subsequently updated), which we summarize in Table I, Panel B. Of
particular interest to us are two variables: net worth, and investment experience. For this
limited sample (about one-third of our total sample), the distribution of net worth for
women is slightly less than that for men, though the difference is not economically large.
For this limited sample, we also calculate the ratio of the market value of equity (as of the
first month that the account appears in our data set) to self-reported net worth (which is
reported at the time the account is opened). This provides a measure, albeit crude, of the
proportion of a household’s net worth that is invested in the common stocks that we
analyze. (If this ratio is greater than one, we delete the observation from our analysis.)

gender differences in portfolio risk may be due to differences in risk-tolerance rather than (or in addition
to) differences in overconfidence.
6
Throughout the paper, portfolio values are reported in current dollars.

7
The mean household holds about 13 percent of its net worth in the common stocks we
analyze and there is little difference in this ratio between men and women.

The differences in self-reported experience by gender are quite large. In general,

women report having less investment experience than men. For example, 47.8 percent of
women report having good or extensive investment experience, while 62.5 percent of
men report the same level of experience.

Married couples may influence each other’s investment decisions. In some cases
the spouse making investment decisions may not be the spouse who originally opened a
brokerage account. Thus we anticipate that observable differences in the investment
activities of men and women will be greatest for single men and single women. To
investigate this possibility, we partition our data on the basis of marital status. The
descriptive statistics from this partition are presented in the last six columns of Table I.
For married households, we observe very small differences in age, income, the
distribution of net worth, and the ratio of net worth to equity. Married women in our
sample are less likely to have children than married men and they report having less
investment experience than men.

For single households, some differences in demographics become larger. The

average (median) age of the single women in our sample is five (four) years older than
that of the single men. The average income of single women is $6,100 less than that of
single men and fewer report having incomes in excess of $125,000. Similarly, the
distribution of net worth for single women is lower than that of single men. Finally,
single women report having less investment experience than single men.

B. Return Calculations
To evaluate the investment performance of men and women, we calculate the
gross and net return performance of each household. The net return performance is
calculated after a reasonable accounting for the market impact, commissions, and bid-ask
spread of each trade.

8
 For each trade, we estimate the bid-ask spread component of transaction costs for
purchases ( sprdb ) or sales ( sprd s ) as:

 P − 1 , a n d
cl

s p rd s =  P 
ds
s
ds

= −
 P − 1 .
cl

 P 
db
s p rd b b
db

Pdcls and Pdclb are the reported closing prices from the Center for Research in Security Prices

(CRSP) daily stock return files on the day of a sale and purchase, respectively;
Pdss and Pdbb are the actual sale and purchase price from our account database. Our estimate

of the bid-ask spread component of transaction costs includes any market impact that
might result from a trade. It also includes an intraday return on the day of the trade. The
commission component of transaction costs is calculated to be the dollar value of the
commission paid scaled by the total principal value of the transaction, both of which are
reported in our account data.

The average purchase costs an investor 0.31 percent, while the average sale costs
an investor 0.69 percent in bid-ask spread. Our estimate of the bid-ask spread is very
close to the trading cost of 0.21 percent for purchases and 0.63 percent for sales paid by
open-end mutual funds from 1966 to 1993 [Carhart 1997].7 The average purchase in
excess of $1,000 cost 1.58 percent in commissions, while the average sale in excess of
$1,000 cost 1.45 percent.8

7
Odean [1999] finds that individual investors are more likely to both buy and sell particular stocks when
the prices of those stocks are rising. This tendency can partially explain the asymmetry in buy and sell
spreads. Any intraday price rises following transactions subtract from our estimate of the spread for buys
and add to our estimate of the spread for sells.
8
To provide more representative descriptive statistics on percentage commissions, we exclude trades less
than $1,000. The inclusion of these trades results in a round-trip commission cost of five percent, on
average (2.1 percent for purchases and 3.1 percent for sales).

9
 We calculate trade-weighted (weighted by trade size) spreads and commissions.
These figures can be thought of as the total cost of conducting the $24 billion in common
stock trades (approximately $12 billion each in purchases and sales). Trade-size
weighting has little effect on spread costs (0.27 percent for purchases and 0.69 percent for
sales) but substantially reduces the commission costs (0.77 percent for purchases and
0.66 percent for sales).

In sum, the average trade in excess of $1,000 incurs a round-trip transaction cost
of about one percent for the bid-ask spread and about three percent in commissions. In
aggregate, round-trip trades cost about one percent for the bid-ask spread and about 1.4
percent in commissions.

We estimate the gross monthly return on each common stock investment using the
beginning-of-month position statements from our household data and the CRSP monthly
returns file. In so doing, we make two simplifying assumptions. First, we assume that all
securities are bought or sold on the last day of the month. Thus, we ignore the returns
earned on stocks purchased from the purchase date to the end of the month and include
the returns earned on stocks sold from the sale date to the end of the month. Second, we
ignore intramonth trading (e.g., a purchase on March 6 and a sale of the same security on
March 20), though we do include in our analysis short-term trades that yield a position at
the end of a calendar month. Barber and Odean [1999] provide a careful analysis of both
of these issues and document that these simplifying assumptions yield trivial differences
in our return calculations.

Consider the common stock portfolio for a particular household. The gross
monthly return on the household’s portfolio ( Rhtgr ) is calculated as:

sht
R hgtr = ∑
i=1
p i t R igt r ,

where pit is the beginning-of-month market value for the holding of stock i by household
h in month t divided by the beginning-of-month market value of all stocks held by

10
household h, Ritgr is the gross monthly return for that stock, and sht is the number of
stocks held by household h in month t.

For security i in month t, we calculate a monthly return net of transaction costs

( Ritnet ) as:

( 1 − c ist )
(1 + R n et
) = (1 + R g r
)
( 1 + c ib, t − 1 )
it it

where cits is the cost of sales scaled by the sales price in month t and cib,t −1 is the cost of

purchases scaled by the purchase price in month t-1. The cost of purchases and sales
include the commissions and bid-ask spread components, which are estimated
individually for each trade as previously described. Thus, for a security purchased in
month t-1 and sold in month t, both cits and cib,t −1 are positive; for a security that was

neither purchased in month t-1 nor sold in month t, both cits and cib,t −1 are zero. Because

the timing and cost of purchases and sales vary across households, the net return for
security i in month t will vary across households. The net monthly portfolio return for
each household is:
sht
R net
ht = ∑
i=1
p i t R i nt e t .

(If only a portion of the beginning-of-month position in stock i was purchased or sold, the
transaction cost is only applied to the portion that was purchased or sold.)

We estimate the average gross and net monthly returns earned by men as:

nmt
1
RM t
gr
=
nmt
∑ R hgtr , a n d
h=1
nmt
1
RM t
net
=
nmt
∑ R hnte t .
h =1

11
where nmt is the number of male households with common stock investment in month t.
There are analogous calculations for women.

C. Turnover
We calculate the monthly portfolio turnover for each household as one half the
monthly sales turnover plus one half the monthly purchase turnover.9 In each month
during our sample period, we identify the common stocks held by each household at the
beginning of month t from their position statement. To calculate monthly sales turnover,
we match these positions to sales during month t. The monthly sales turnover is
calculated as the shares sold times the beginning-of-month price per share divided by the
total beginning-of-month market value of the household’s portfolio. To calculate monthly
purchase turnover, we match these positions to purchases during month t-1. The monthly
purchase turnover is calculated as the shares purchased times the beginning-of-month
price per share divided by the total beginning-of-month market value of the portfolio. 10

D. The Effect of Trading on Return Performance

We calculate an “own-benchmark” abnormal return for individual investors which
is similar in spirit to those proposed by Lakonishok, Shleifer, and Vishny [1992] and
Grinblatt and Titman [1993]. In this abnormal return calculation, the benchmark for
household h is the month t return of the beginning-of-year portfolio held by household
h,11 denoted Rhtb . It represents the return that the household would have earned had it

sht
Sit
9
Sell turnover for household h in month t is calculated as ∑p
i =1
it min(1,
Hit
) , where Sit is the number of
shares in security i sold during the month, pit is the value of stock i scaled by the total value of stock
holdings, and Hit are the number of shares of security i held at the beginning of the month. Buy turnover is
sht
Bit
calculated as ∑p
i =1
i , t +1 min(1,
Hi ,t +1
) , where Bit are the number of shares of security i bought during the

month.

10
If more shares were sold than were held at the beginning of the month (because, for example, an investor
purchased additional shares after the beginning of the month), we assume the entire beginning-of-month
position in that security was sold. Similarly, if more shares were purchased in the preceding month than
were held in the position statement, we assume the entire position was purchased in the preceding month.
Thus, turnover, as we have calculated it, cannot exceed 100 percent in a month.
11
When calculating this benchmark, we begin the year on February 1st. We do so because our first monthly
position statements are from the month end of January 1991. If the stocks held by a household at the

12
merely held its beginning-of-year portfolio for the entire year. The gross or net own-
benchmark abnormal return is the return earned by household h less the return of
household h’s beginning-of-year portfolio ( ARhtgr = Rhtgr - Rhtb or ARhtnet = Rhtnet - Rhtb ). If the
household did not trade during the year, the own-benchmark abnormal return would be
zero for all twelve months during the year.

In each month, the abnormal returns across male households are averaged
yielding a 72-month time-series of mean monthly own-benchmark abnormal returns.
Statistical significance is calculated using t-statistics based on this time-series:

2 7 ∑ 2R 7
nmt
1
ARtgr σ ARtgr / 72 , where ARtgr = gr
ht − Rhtb . There is an analogous
nmt t =1

calculation of net abnormal returns for men, gross abnormal returns for women, and net
abnormal returns for women.12

The advantage of the own-benchmark abnormal return measure is that it doesn’t

adjust returns according to a particular risk model. No model of risk is universally
accepted; furthermore, it may be inappropriate to adjust investors’ returns for stock
characteristics that they do not associate with risk. The own-benchmark measure allows
each household to self-select the investment style and risk profile of its benchmark (i.e.,
the portfolio it held at the beginning of the year), thus emphasizing the effect trading has
on performance.

E. Security Selection

Our theory says that men will underperform women because men trade more and
trading is costly. An alternative cause of underperformance is inferior security selection.
Two investors with similar initial portfolios and similar turnover will differ in

beginning of the year are missing CRSP returns data during the year, we assume that stock is invested in
the remainder of the household’s portfolio.
12
Alternatively one can first calculate the monthly time-series average own-benchmark return for each
household and then test the significance of the cross-sectional average of these. The t-statistics for the
cross-sectional tests are larger than those we report for the time-series tests.

13
performance if one consistently makes poor security selections. To measure security
selection ability, we compare the returns of stocks bought to those of stocks sold.

In each month, we construct a portfolio comprised of those stocks purchased by

men in the preceding twelve months. The returns on this portfolio in month t are
calculated as:
n pt

∑T it
pm
Ritpm
Rtpm = i =1
n pt

∑T i =1
it
pm

where Titpm is the aggregate value of all purchases by men in security i from month t-12
through t-1, Ritpm is the gross monthly return of stock i in month t, and npt is the number
of different stocks purchased from month t-12 through t-1. (Alternatively, we weight by
the number rather than the value of trades.) Four portfolios are constructed: one for the
purchases of men ( Rtpm ), one for the purchases of women ( Rtpw ) one for the sales of men

( Rtsm ), and one for the sales of women ( Rtsw ).

III. Results

A. Men versus Women

In Table II, Panel A, we present position values and turnover rates for the
portfolios held by men and women. Women hold slightly, but not dramatically smaller,
common stock portfolios ($18,371 versus $21,975). Of greater interest is the difference
in turnover between women and men. Models of overconfidence predict that women,
who are generally less overconfident than men, will trade less than men. The empirical
evidence is consistent with this prediction. Women turn their portfolios over
approximately 53 percent annually (monthly turnover of 4.4 percent times twelve), while
men turn their portfolios over approximately 77 percent annually (monthly turnover of

14
6.4 percent times twelve). We are able to comfortably reject the null hypothesis that
turnover rates are similar for men and women (at less than a one-percent level). Though
the median turnover is substantially less for both men and women, the differences in the
median levels of turnover are also reliably different between genders.

In Table II, Panel B, we present the gross and net percentage monthly own-
benchmark abnormal returns for common stock portfolios held by women and men.
Women earn gross monthly returns that are 0.041 percent lower than those earned by the
portfolio they held at the beginning of the year, while men earn gross monthly returns
that are 0.069 percent lower than those earned by the portfolio they held at the beginning
of the year. Both shortfalls are statistically significant at the one percent level as is their
0.028 difference (0.34 percent annually).

Turning to net own-benchmark returns we find that women earn net monthly
returns that are 0.143 percent lower than those earned by the portfolio they held at the
beginning of the year, while men earn net monthly returns that are 0.221 percent lower
than those earned by the portfolio they held at the beginning of the year. Again, both
shortfalls are statistically significant at the one percent level as is their difference of 0.078
percent (0.94 percent annually).

Are the lower own-benchmark returns earned by men due to more active trading
or to poor security selection? The calculations described in Section II.E., indicate that the
stocks both men and women choose to sell earn reliably greater returns than the stocks
they choose to buy. This is consistent with Odean [1999], who uses different data to show
that the stocks individual investors sell earn reliably greater returns than the stocks they
buy. We find that the stocks men choose to purchase underperform those that they choose
to sell by 20 basis points per month (t = -2.79)13. The stocks women choose to purchase
underperform those they choose to sell by 17 basis points per month (t = -2.02). The

This t-statistic is calculated as: t =

2R
t
pm
− Rtsm 7
2 7/
13

σ Rt − R
pm
t
sm
60

15
difference in the underperformances of men and women is not statistically significant.
(When we weight each trade equally rather than by its value, men’s purchases
underperform their sales by 23 basis points per month and women’s purchases
underperform their sales by 22 basis points per month.) Both men and women detract
from their returns (gross and net) by trading; men simply do so more often.

While not pertinent to our hypotheses -- which predict that overconfidence leads
to excessive trading and that this trading hurts performance--one might want to compare
the raw returns of men to those of women. During our sample period, men earned
average monthly gross and net returns of 1.501 and 1.325 percent; women earned average
monthly gross and net returns of 1.482 and 1.361 percent. Men’s gross and net average
monthly market-adjusted returns (the raw monthly return minus the monthly return on the
CRSP value-weighted index) were 0.081 and -0.095 percent; women’s gross and net
average monthly market-adjusted returns were 0.062 and -0.059 percent.14 For none of
these returns are the differences between men and women statistically significant. The
gross raw and market-adjusted returns earned by men and women differed in part
because, as we document in Section III.D, men tended to hold smaller, higher beta stocks
than did women; such stocks performed well in our sample period.

In summary, our main findings are consistent with the two predictions of the
overconfidence models. First, men, who are more overconfident than women, trade more
than women (as measured by monthly portfolio turnover). Second, men lower their
returns more through excessive trading than do women. Men lower their returns more
than women because they trade more, not because their security selections are worse.

B. Single Men versus Single Women

If gender serves as a reasonable proxy for overconfidence, we would expect the

differences in portfolio turnover and net return performance to be larger between the
accounts of single men and single women than between the accounts of married men and

14
The gross (net) annualized geometric mean returns earned by men and women were 18.7 (16.3) and 18.6
(16.9) percent, respectively.

16
married women. This is because, as discussed above, one spouse may make or influence
decisions for an account opened by the other. To test this ancillary prediction, we
partition our sample into four groups: married women, married men, single women, and
single men. Because we do not have marital status for all heads of households in our data
set, the total number of households that we analyze here is less than that previously
analyzed by about 4,400.

Position values and turnover rates of the portfolios held by the four groups are
presented in the last six columns of Table II, Panel A. Married women tend to hold
smaller common stock portfolios than married men; these differences are smaller
between single men and single women. Differences in turnover are larger between single
women and men than between married women and men, thus confirming our ancillary
prediction.

In the last six columns of Table II, Panel B, we present the gross and net
percentage monthly own-benchmark abnormal returns for common stock portfolios of the
four groups. The gross monthly own-benchmark abnormal returns of single women
(-0.029) and of single men (-0.074) are statistically significant at the one percent level, as
is their difference (0.045--annually 0.54 percent). We again stress that it is not the
superior timing of the security selections of women that leads to these gross return
differences. Men (and particularly single men) are simply more likely to act (i.e., trade)
despite their inferior ability.

The net monthly own-benchmark abnormal returns of married women (-0.154)

and married men (-0.214) are statistically significant at the one percent level, as is their
difference (0.060). The net monthly own-benchmark abnormal returns of single women
(-0.121) and of single men (-0.242) are statistically significant at the one percent level, as
is their difference (0.120--annually 1.4 percent). Single men underperform single women
by significantly more than married men underperform married women (0.120 - 0.60 =
0.60; t = 2.80).

17
 In summary, if married couples influence each other’s investment decisions and
thereby reduce the effects of gender differences in overconfidence, then the results of this
section are consistent with the predictions of the overconfidence models. First, men trade
more than women and this difference is greatest between single men and women. Second,
men lower their returns more through excessive trading than do women and this
difference is greatest between single men and women.

C. Cross-Sectional Analysis of Turnover and Performance

Perhaps turnover and performance differ between men and women because
gender correlates with other attributes that predict turnover and performance. We
therefore consider several demographic characteristics known to affect financial decision-
making: age, marital status, the presence of children in a household, and income.

To assess whether the differences in turnover can be attributed to these

demographic characteristics, we estimate a cross-sectional regression where the
dependent variable is the observed average monthly turnover for each household. The
independent variables in the regression include three dummy variables: marital status
(one indicating single), gender (one indicating woman), and the presence of children (one
indicating a household with children). In addition, we estimate the interaction between
marital status and gender. Finally, we include the age of the person who opened the
account and household income. Since our income measure is truncated at $125,000, we
also include a dummy variable if household income was greater than $125,000. 15

We present the results of this analysis in column two of Table III; they support
our earlier findings. The estimated dummy variable on gender is highly significant
(t = -12.76) and indicates that (ceteris paribus) the monthly turnover in married women’s
accounts is 146 basis points less than in married men’s. The differences in turnover are
significantly more pronounced between single women and single men; ceteris paribus,

15
Average monthly turnover for each household is calculated for the months during which common stock
holdings are reported for that household. Marital status, gender, the presence of children, age, and
income are from Infobase’s records as of June 8, 1997. Thus the dependent variable is observed before
the independent variables. This is also true for the cross-sectional tests reported below.

18
single women trade 219 basis points (146 plus 73) less than single men. Of the control
variables we consider, only age is significant; monthly turnover declines by 31 basis
points per decade that we age.

We next consider whether our performance results can be explained by other

demographic characteristics. To do so, we estimate a cross-sectional regression in which
the dependent variable is the monthly own-benchmark abnormal net return earned by
each household. The independent variables for the regression are the same as those
previously employed.16,17 The results of this analysis, presented in column three of Table
III, confirm our earlier finding that men deduct more from their return performance by
trading than do women. The estimated dummy variable on gender is highly significant (t
= 4.27) and indicates that (ceteris paribus) the monthly own-benchmark abnormal net
return for married men is 5.8 basis points less than for married women. The difference in
the performance of single men and women, 8.5 basis points a month (5.8 plus 2.7), is
even is greater than that of their married counterparts, though the difference is not
statistically significant. Of the control variables that we consider, only age appears as
statistically significant; own-benchmark abnormal net returns improve by 0.2 basis points
per decade that we age. (The last four columns of Table III are discussed in the following
section.)

D. Portfolio Risk

In this section we estimate risk characteristics of the common stock investments

of men and women. Though not the central focus of our inquiry, we believe the results

16
The statistical significance of the results reported in this section should be interpreted with caution. On
one hand, the standard errors of the coefficient estimates are likely to be inflated, since the dependent
variable is estimated with error. (Though we observe several months of each household’s own-
benchmark returns, a household’s observed own-benchmark returns may differ from its long run
average.) On the other hand, these standard errors may be deflated, since different households may
choose to trade in or out of the same security resulting in cross-sectional dependence in the abnormal
performance measure across households. We suspect that the problem of cross-sectional dependence is
not severe, since the average household invests in only four securities.

19
that we present here are the first to document that women tend to hold less risky positions
than men within their common stock portfolios. Our analysis also provides additional
evidence that men decrease their portfolio returns through trading more so than do
women.

We estimate market risk (beta) and the risk associated with small firms by
estimating the following two-factor monthly time-series regression:

3RM t
gr
− R ft 8=α i + β i 3R mt − R ft 8 + s SM B
i t + ε it ,
where
Rft = the monthly return on T-Bills, 18
Rmt = the monthly return on a value-weighted market index,
SMBt = the return on a value-weighted portfolio of small stocks minus the return
on a value-weighted portfolio of big stocks,19
αi = the intercept,
βi = the market beta,
si = coefficient of size risk, and
εit = the regression error term.
The subscript i denotes parameter estimates and error terms from regression i, where we
estimate twelve regressions: one each for the gross and net performances of the average
man, the average married man, and the average single man, and one each for the gross
and net performance of the average woman, the average married woman, and the average
single woman.

In each regression the estimate of βi measures portfolio risk due to covariance

with the market portfolio. The estimate of si measures risk associated with the size of the
firms held in a portfolio; a larger value of si denotes increased exposure to small stocks.

17
To reduce the undue influence of a few households with position statements for only a few months, we
delete those households with less than three years of positions. The tenor of our results is similar if we
include these households.
18
The return on T-bills is from Stocks, Bonds, Bills, and Inflation, 1997 Yearbook, Ibbotson Associates,
Chicago, IL.

20
Fama and French [1993] and Berk [1995] argue that firm size is a proxy for risk.20
Finally, the intercept, αi, is an estimate of risk-adjusted return and thus provides an
alternative performance measure to our own-benchmark abnormal return.

The results of this analysis are presented in Table IV. The time-series regressions
of the gross average monthly excess return earned by women (men) on the market excess
return and a size based zero-investment portfolio reveal that women hold less risky
positions than men. While, relative to the total market, both women and men tilt their
portfolios toward high beta, small firms, women do so less. These regressions also
confirm our finding that men decrease their portfolio returns through trading more so
than do women. Men and women earn similar gross and net returns, however, men do so
by investing in smaller stocks with higher market risk.21 The intercepts from the two-
factor regressions of net returns (Table IV, Panel B) suggest that, after a reasonable
accounting for the higher market and size risks of men’s portfolios, women earn net
returns that are reliably higher (by 9 basis points per month or 1.1 percent annually) than
those earned by men.22

Beta and size may not be the only two risk factors that concern individual
investors. These investors hold, on average, only four common stocks in their portfolios.

19
The construction of this portfolio is discussed in detail in Fama and French [1993]. We thank Kenneth
French for providing us with these data.
20
Berk [1995] points out that systematic effects in returns are likely to appear in price, since price is the
value of future cash flows discounted by expected return. Thus size and the book-to-market ratio are
likely to correlate with cross-sectional differences in expected returns. Fama and French [1993] also
claim that size and the book-to-market ratio proxy for risk. Not all authors agree that book-to-market
ratios are risk proxies (e.g., Lakonishok, Shleifer, and Vishny [1994]). Our qualitative results are
unaffected by the inclusion of a book-to-market factor.
21
During our sample period, the mean monthly return on SMBt was 17 basis points.
22
Fama and French [1993] argue that the risk of common stock investments can be parsimoniously
summarized as risk related to the market, firm size, and a firm’s book-to-market ratio. When the return
on a value-weighted portfolio of high book-to-market stocks minus the return on a value-weighted
portfolio of low book-to-market stocks (HMLt) is added as an independent variable to the two-factor
monthly time-series regressions, we find that both men and women tilt their portfolios towards high
book-to-market stocks, though men do more so. The intercepts from these regressions indicate that after
accounting for the market, size, and book-to-market tilts of their portfolios, women outperformed men by
12 basis points a month (1.4 percent annually). Lyon, Barber, and Tsai (1999) document that intercept
tests using the three-factor model are well specified in random samples and samples of large or small
firms. Thus, the Fama-French intercept tests account well for the small stock tilt of individual investors.
During our sample period, the mean monthly return on HMLt was 20 basis points.

21
Those without other commons stock or mutual fund holdings, bear a great deal of
idiosyncratic risk. To measure differences in the idiosyncratic risk exposures of men and
women, we estimate the volatility of their common stock portfolios as well as the average
volatility of the stocks they hold. We calculate portfolio volatility as the standard
deviation of each household’s monthly portfolio returns for the months in which the
household held common stocks. We calculate the average volatility of the individual
stocks they hold as the average standard deviation of monthly returns during the previous
three calendar years for each stock in a household’s portfolio. This average is weighted
by position size within months and equally across months.

To test whether men and women differ in the volatility of their portfolios and of
the stocks they hold, and to confirm that they differ in the market risk and size risk of
their portfolios, we estimate four additional cross-sectional regressions. As in the cross-
sectional regressions of turnover and own-benchmark returns, the independent variables
in these regressions include dummy variables for marital status, gender, the presence of
children in the household, and the interaction between marital status and gender, as well
as variables for age and income and a dummy variable for income over $125,000. The
dependent variable is alternately, the volatility of each household’s portfolio, the average
volatility of the individual stocks held by each household, the coefficient on the market
risk premium (i.e., beta) and the coefficient on the size zero-investment portfolio. Both
coefficients are estimated from the two-factor model described above.23

We present the results of these regressions in the last four columns of Table III.
For all four risk measures, portfolio volatility, individual stock volatility, beta, and size,
men invest in riskier positions than women. Of the control variables that we consider,
marital status, age, and income appear to be correlated with the riskiness of the stocks in
which a household invests. The young and single hold more volatile portfolios composed
of more volatile stocks. They are more willing to accept market risk and to invest in small
stocks. Those with higher incomes are also more willing to accept market risk. These

22
results are completely in keeping with the common-sense notion that the young and
wealthy with no dependents are willing to accept more investment risk.

The risk differences in the common stock portfolios held by men and women are
not surprising. There is considerable evidence that men and women have different
attitudes toward risk. From survey responses of 5,200 men and 6,400 women, Barsky,
Juster, Kimball, and Shapiro [1997] conclude that women are more risk-averse than men.
Analyzing off-track betting slips for 2,000 men and 2,000 women, Bruce and Johnson
[1994] find that men take larger risks than women though they find no evidence of
differences in performance. Jianakoplos and Bernasek [1998] report that roughly 60
percent of the female respondents to the 1989 Survey of Consumer Finances, but only 40
percent of the men, said they were not willing to take any financial risks. Karabenick and
Addy [1979], Sorrentino, Hewitt, and Raso-Knott [1992], and Zinkhan and Karande
[1991], observe that men have riskier preferences than women. Flynn, Slovic, and Mertz
[1994], Finucane, Slovic, Mertz, Flynn, and Satterfield [1998], and Finucane and Slovic
[1999] find that white men perceive a wide variety of risks as lower than do women and
non-white men. Bajtelsmit and Bernasek [1996], Bajtelsmit and VanDerhei [1997], Hinz,
McCarthy, and Turner [1997], and Sundén and Surette [1998] find that men hold more of
their retirement savings in risky assets. Jianakoplos and Bernasek [1998] report the same
for overall wealth. Papke [1998], however, finds in a sample of near retirement women
and their spouses, that women do not invest their pensions more conservatively than men.

IV. Competing Explanations for Differences in Turnover and

Performance

A. Risk Aversion
Since men and women differ in both overconfidence and risk aversion, it is
natural to ask whether differences in risk aversion alone explain our findings. They do

23
These regressions are estimated for households with at least three years of available data. Statistical
inference might also be affected by measurement error in the dependent variable and cross-sectional
dependence in the risk measures (see footnotes 12 and 13).

23
not. While rational informed investors will trade more if they are less risk averse, they
will also improve their performance by trading. Thus, if rational and informed, men (and
women) should improve their performance by trading. But both groups hurt their
performance by trading. And men do so more than women. This outcome can be
explained by differences in the overconfidence of men and women and by differences in
the risk-aversion of overconfident men and women. It cannot be explained by differences
in risk-aversion alone.

B. Gambling
To what extent may gender differences in the propensity to gamble explain the
differences in turnover and returns that we observe? There are two aspects of gambling
that we consider: risk-seeking and entertainment.

Risk-seeking is when one demonstrates a preference for outcomes with greater

variance but equal or lower expected return. In equity markets the simplest way to
increase variance without increasing expected return is to underdiversify. Excessive
trading has a related, but decidedly different effect; it decreases expected returns without
decreasing variance. Thus risk-seeking may account for underdiversification (though
lack of diversification could also result from simple ignorance of its benefits or from
overconfidence), but it does not explain excessive trading.

It may be that some men, and to a lesser extent women, trade for entertainment.
They may enjoy placing trades that they expect, on average, will lose money. It is more
likely that even those who enjoy trading believe, overconfidently, that they have trading
ability.

Some investors may set aside a small portion of their wealth to trade for
entertainment, while investing the majority more prudently. If “entertainment accounts”
are driving our findings, we would expect turnover and underperformance to decline as
the common stocks in the accounts we observe represent a larger proportion of each
household’s total wealth. We find, however, that this is not the case.

24
 Approximately one third of our households reported their net worth at the time
they opened their accounts. We calculate the proportion of net worth invested in the
common stock portfolios we observe as the beginning value of a household’s common
stock investments scaled by its self-reported net worth.24 We then analyze the turnover
and investment performance of 2,333 households with at least 50 percent of their net
worth invested in common stock at this brokerage. These households have similar
turnover (6.25 percent per month, 25 75 percent annually) to our full sample (Table II).
Furthermore, these households earn gross and net returns that are very similar to the full
sample.

For mutual funds, as for individuals, turnover has a negative impact on returns
[Carhart 1997].26 Some mutual fund managers may actively trade, and thereby knowingly
reduce their funds’ expected returns, simply to create the illusion that they are providing
a valuable service [Dow and Gorton 1994]. If the majority of active managers believe
that they offer only disservice to their clients, this is a cynical industry indeed. We
propose that most mutual fund managers, while aware that active management on
average detracts value, believe that their personal ability to manage is above average.
Thus they are motivated to trade by overconfidence, not cynicism.

Individuals may trade for entertainment. Mutual fund managers may trade to
appear busy. It is unlikely that most individuals churn their accounts to appear busy or
that most fund managers trade for fun. Overconfidence offers a simple explanation for the
high trading activity of both groups.

V. Conclusion
Modern financial economics assumes that we behave with extreme rationality;
but, we do not. Furthermore, our deviations from rationality are often systematic.

24
This estimate is upwardly biased because the account opening date generally precedes our first portfolio
position observation and net worth is likely to have increased in the interim.
25
The standard error of the mean monthly turnover is 0.2.

25
Behavioral finance relaxes the traditional assumptions of financial economics by
incorporating these observable, systematic, and very human departures from rationality
into standard models of financial markets. Overconfidence is one such departure. Models
that assume market participants are overconfident yield one central prediction:
overconfident investors will trade too much.

We test this prediction by partitioning investors on the basis of a variable that

provides a natural proxy for overconfidence – gender. Psychological research has
established that men are more prone to overconfidence than women, particularly so in
male dominated realms such as finance. Rational investors trade only if the expected
gains exceeds transactions costs. Overconfident investors overestimate the precision of
their information and thereby the expected gains of trading. They may even trade when
the true expected net gains are negative. Models of investor overconfidence predict that,
since men are more overconfident than women, men will trade more and perform worse
than women.

Our empirical tests provide strong support for the behavioral finance model. Men
trade more than women and thereby reduce their returns more so than do women.
Furthermore, these differences are most pronounced between single men and single
women.

Individuals turnover their common stock investments about 70 percent annually

[Barber and Odean 1999]. Mutual funds have similar turnover rates [Carhart 1997]. Yet,
those individuals and mutual funds that trade most earn the lowest returns. We believe
that there is a simple and powerful explanation for the high levels of counterproductive
trading in financial markets: overconfidence.

THE UNIVERSITY OF CALIFORNIA, DAVIS

26
Lakonishok, Shleifer, and Vishny [1992] report a positive relation between turnover and performance for
769 all-equity pension funds, though this finding puzzles the authors.

26
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 TABLE I
DESCRIPTIVE STATISTICS FOR DEMOGRAPHICS OF FEMALE AND MALE HOUSEHOLDS

The sample consists of households with common stock investment at a large discount brokerage firm for which we are able to
identify the gender of the person who opened the household’s first account. Data on marital status, children, age, and income are from
Infobase Inc. as of June 1997. Self-reported data are information supplied to the discount brokerage firm at the time the account is
opened by the person on opening the account. Income is reported within eight ranges, where the top range is greater than $125,000.
We calculate means using the midpoint of each range and $125,000 for the top range. Equity to Net Worth (%) is the proportion of
the market value of common stock investment at this discount brokerage firm as of January 1991 to total self-reported net worth when
the household opened its first account at this brokerage. Those households with a proportion equity to net worth greater than 100%
are deleted when calculating means and medians. Number of observations for each variable is slightly less than the number of
reported households.

All households Married households Single households

Variable Women Men Difference Women Men Difference Women Men Difference
(Women – (Women – (Women –
Men) Men) Men)
Panel A: infobase data
Number of households 8,005 29,659 NA 4,894 19,741 NA 2,306 6,326 NA
Percentage married 68.0 75.7 -7.7

Percentage with children 25.2 32.2 -7.0 33.6 40.4 -6.8 10.6 10.5 0.1
Mean age 50.9 50.3 0.6 49.9 51.1 -1.2 53.0 48.2 4.8
Median age 48.0 48.0 0.0 48.0 48.0 0.0 50.0 46.0 4.0
Mean income ($000) 73.0 75.6 -2.6 81.2 79.6 1.6 56.7 62.8 -6.1
% with Income > $125,000 11.2 11.7 -0.5 14.2 13.0 1.2 5.9 7.4 -1.5

32
 Panel B: self-reported data
Number of households 2,637 11,226 1,707 7,700 652 2,184
Net worth ($000)
90th percentile 500.0 500.0 0.0 500.0 500.0 0.0 350.0 450.0 -100.0
75th percentile 200.0 250.0 -50.0 250.0 250.0 0.0 175.0 200.0 -25.0
median 100.0 100.0 0.0 100.0 100.0 0.0 100.0 100.0 0.0
25th percentile 60.0 74.5 -14.5 62.5 74.5 -12.0 40.0 62.0 -22.0
10th percentile 27.0 37.0 -10.0 35.0 37.0 -2.0 20.0 35.0 -15.0
Equity to net worth (%)
mean 13.3 13.2 0.1 12.9 12.9 0.0 14.4 14.3 0.1
median 6.7 6.7 0.0 6.3 6.6 -0.3 7.9 7.4 0.5
Investment experience (%)
none 5.4 3.4 2.0 4.7 3.4 1.3 7.4 3.0 4.4
limited 46.8 34.1 12.7 44.9 34.2 10.7 52.6 33.3 19.3
good 39.1 48.5 -9.4 40.8 48.5 -7.7 33.3 48.8 -15.5
extensive 8.7 14.0 -5.3 9.6 13.9 -4.3 6.7 14.9 -8.2

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 TABLE II
POSITION VALUE, TURNOVER, AND RETURN PERFORMANCE OF
COMMON STOCK INVESTMENTS OF FEMALE AND MALE HOUSEHOLDS:
FEBRUARY 1991 TO JANUARY 1997

Households are classified as female or male based on the gender of the person who opened the account. Beginning position
value is the market value of common stocks held in the first month that the household appears during our sample period. Mean
monthly turnover is the average of sales and purchase turnover. [Median values are in brackets.] Own-benchmark abnormal returns are
the average household percentage monthly abnormal return calculated as the realized monthly return for a household less the return
that would have been earned had the household held the beginning-of-year portfolio for the entire year (i.e., the twelve months
beginning February 1st). T-statistics for abnormal returns are in parentheses and are calculated using time-series standard errors across
months.
All households Married households Single households
Women Men Difference Women Men Difference Women Men Difference
(Women – (Women – (Women –
Men) Men) Men)
Number of households 8,005 29,659 NA 4,894 19,741 NA 2,306 6,326 NA
Panel A: position value and turnover
Mean [median] 18,371 21,975 -3,604*** 17,754 22,293 -4,539*** 19,654 20,161 -507***
Beginning position value ($) [7,387] [8,218] [-831]*** [7,410] [8,175] [-765]*** [7,491] [8,097] [-606]***
Mean [median] 4.40 6.41 -2.01*** 4.41 6.11 -1.70*** 4.22 7.05 -2.83***
Monthly turnover (%) [1.74] [2.94] [-1.20]*** [1.79] [2.81] [1.02]*** [1.55] [3.32] [-1.77]***
Panel B: performance
Own-benchmark monthly -0.041*** -0.069*** 0.028*** -0.050*** -0.068*** 0.018 -0.029* -0.074*** 0.045***
Abnormal gross return (%) (-2.84) (-3.66) (2.43) (-2.89) (-3.67) (1.28) (-1.64) (-3.60) (2.53)

Own-benchmark monthly -0.143*** -0.221*** 0.078*** -0.154*** -0.214*** 0.060*** -0.121*** -0.242*** 0.120***
Abnormal net return (%) (-9.70) (-10.83) (6.35) (-9.10) (-10.48) (3.95) (-6.68) (-11.15) (6.68)
***, **, * - significant at the 1, 5, and 10% level, respectively. Tests for differences in medians are based on a Wilcoxon sign-rank test statistic.

34
 TABLE III
CROSS-SECTIONAL REGRESSIONS OF TURNOVER, OWN-BENCHMARK ABNORMAL RETURN, BETA, AND SIZE:
FEBRUARY 1991 TO JANUARY 1997

Each regression is estimated using data from 26,618 households. The dependent variables are the mean monthly percentage
turnover for each household, the mean monthly own-benchmark abnormal net return for each household, the portfolio volatility for
each household, the average volatility of the individual common stocks held by each houshold, estimated beta exposure for each
household, and estimated size exposure for each household. Own-benchmark abnormal net returns are calculated as the realized
monthly return for a household less the return that would have been earned had the household held the beginning-of-year portfolio for
the entire year. Portfolio volatility is the standard deviation of each household’s monthly portfolio returns. Individual volatility is the
average standard deviation of monthly returns over the previous three years for each stock in a household’s portfolio. The average is
weighted equally across months and by position size within months. The estimated exposures are the coefficient estimates on the
independent variables from time-series regressions of the gross household excess return on the market excess return ( Rmt − R ft ) and a
zero-investment size portfolio ( SMBt ). Single is a dummy variable that takes a value of one if the primary account holder (PAH) is
single. Woman is a dummy variable that takes a value of one if the primary account holder is a woman. Age is the age of the PAH.
Children is a dummy variable that takes a value of one if the household has children. Income is the income of the household and has a
maximum value of $125,000. When Income is at this maximum, Income Dummy takes on a value of one. (t-statistics are in
parentheses.)

35
Dependent Mean monthly Own-benchmark Portfolio Individual Size
variable turnover (%) abnormal net volatility volatility Beta coefficient
return

Intercept 6.269*** -0.321*** 11.466*** 11.658*** 1.226+ 0.776***

(-11.47) (58.85) (70.98) (11.44) (22.16)

Single 0.483*** 0.002 0.320*** 0.330*** 0.020** 0.079***

(4.24) (0.14) (3.40) (4.17) (2.12) (4.65)

Woman -1.461*** 0.058*** -0.689*** -0.682*** -0.037*** -0.136***

(-12.76) (4.27) (-7.27) (-8.54) (-3.91) (-8.00)

Single x -0.733*** 0.027 -0.439** -0.540*** -0.029 -0.138***

Woman (-3.38) (1.08) (-2.45) (-3.57) (-1.60) (-4.30)

Age / 10 -0.311*** 0.002*** -0.536*** -0.393*** -0.027*** -0.055***

(-9.26) (4.23) (-19.31) (-16.78) (-9.55) (-11.00)

Children -0.037 0.008 -0.014 -0.051 -0.002 -0.008

(-0.40) (0.76) (-0.19) (-0.79) (-0.22) (-0.61)

Income -0.002 0.0002 0.0003 0.001 0.003 0.001

/1000 (-1.30) (1.33) (0.22) (1.38) (2.49)** (0.31)

Income -0.0003 0.027 0.011 0.012 -0.008 -0.018

Dummy (-0.24) (1.54) (0.10) (0.11) (-0.68) (-0.82)

Adj. R2 1.53 0.20 2.11 1.95 0.59 1.19

(%)

+
***, **, * indicates significantly different from zero at the 1, 5, and 10% level, respectively. indicates significantly different from one at the
1% level.

36
 TABLE IV
RISK EXPOSURES AND RISK-ADJUSTED RETURNS OF
COMMON STOCK INVESTMENTS OF FEMALE AND MALE HOUSEHOLDS:
FEBRUARY 1991 TO JANUARY 1997

Households are classified as female or male based on the gender of the person who opened the account. Households are
classified as married or single based on the marital status of the head of household. Coefficient and intercept estimates for the two-
factor model are those from a time-series regression of the gross (net) average household excess return on the market excess return
3 8 3 8
( Rmt − R ft ) and a zero-investment size portfolio ( SMBt ): RM tgr − R ft = α i + β i Rmt − R ft + si SMBt + ε it .

All households Married households Single households

Women Men Difference Women Men Difference Women Men Difference
(Women – (Women – (Women –
Men) Men) Men)
Number of households 8,005 29,659 NA 4,894 19,741 NA 2,306 6,326 NA
Panel A: Gross average household percentage monthly returns
Two-factor model intercept -0.044 -0.083 0.039 -0.051 -0.082 0.031 -0.036 -0.099 0.063
Two-factor model coefficient 1.050*** 1.081*** -0.031** 1.053*** 1.075*** 0.022* 1.035*** 1.088*** 0.053***
Estimate on (Rmt-Rft)
Two-factor model coefficient 0.360*** 0.519*** -0.159*** 0.380*** 0.490*** 0.109*** 0.307*** 0.582*** 0.275***
Estimate on SMBt
Adjusted R2 93.8 92.0 65.3 93.4 92.1 52.8 94.4 91.5 70.6
Panel B: Net average household percentage monthly returns
Two-Factor Model Intercept -0.162* -0.253** 0.091*** -0.171** -0.245** 0.074** -0.142** -0.285** 0.143***

***, **, * - significant at the 1, 5, and 10% level, respectively.

37