The Impact of Experience on Performance
Individual investors adapt their trading strategies over time, but only partially learn from their mistakes. This is what three researchers concluded after analyzing the trading history of 19,487 German individual investors over an eight-year period.
The researchers used the data to test three hypotheses:
- As individual investors gain investment experience, they make fewer investment mistakes.
- Learning from investment mistakes is stronger for those investment mistakes that are easy to detect and avoid.
- An increase in investment experience is associated with an increase in portfolio returns.
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