The performance and persistence of individual investors: rational agents of tulip maniacs?
We study the impact of derivatives trading on the investment performance of individual investors and examine whether investor performance is persistent. Using a sample of more than 68,000accounts and nine million trades, we find that the average investor earns negative gross and net alphas, mainly because of substantial losses on derivatives investments. The underperformance ofderivatives traders is due to bad market timing that results from overreaction to past stock market movements. We also find strong evidence of performance persistence among individual investors. Women are more successful investors than men and persistent winners hold larger accounts with lower turnover.