A closer look at the causes and consequences of frequent stock trading
This chapter examines the phenomenon of frequent stock trading. Specifically, it covers the ample research demonstrating the negative effects of frequent trading on investor returns, as well as several possible underlying causes for this irrational behavior. Possible causes of frequent trading discussed include overconfidence, risk seeking, gambling addiction, frequency of negative emotions, and emotional instability. The chapter also examines gender differences. Although the body of research showing that frequent trading is bad for returns is vast, many investors continue to trade too often for their own good. Therefore, besides discussing potential causes of frequent stock trading, this chapter also stresses the need for future research to identify effective methods of helping investors reduce this financially harmful behavior.