Are Women Better Investors Than Men?

In a battle of the sexes, finance professors Brad Barber and Terrance Odean crunched the trading data on over 35,000 households from a large discount brokerage firm.

They built upon psychological research, which indicates that in the area of finance, men tend to be more overconfident than women. Additional research shows that overconfident investors tend to trade more often than less confident investors.

Armed with this data, Barber and Odean went to work.

They hypothesized that men traded more frequently than women and that this excessive trading hurt their performance more than it hurt the performance of women.

Here’s what they found in a 2001 study published in The Quarterly Journal of Economics:

Men overall traded stocks 45% more frequently than women.
Single men traded stocks 67% more frequently than single women.
Women overall earned annual risk-adjusted returns that were 1.0% greater than men.
Single women earned annual risk-adjusted returns that were 1.4% greater than single men.

So yes, based on this study, women are more successful investors than men because they earn a higher annual return.

An interesting sub-point from the study is the out-performance by women was solely due to their lower trading frequency. Women were no better than men at security selection; instead, their advantage came from making fewer trades.

Let the bragging begin!

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