battle of the sexesThis is an old article but contains important information related to behavorial finance. This study could easily have been written by one of the best value investors ever, David Dreman. I know most of the readership here is men so many people will not like this article. However, it is true that in general women are better investors than men. The reason mainly has to do with the fact men have more overconfidence which most of the time hurts their investments.

I was like the men described in this article many years ago until I discovered value investing. A large part of value investing is patience, and temperment. You can be the best stock picker in the world but if you bail out of all your investments when Lehman brothers collapses, and every “expert” on TV is predicting a depression you will end up losing money in the stock market.

Of course this article does not describe all men. As I said value investors, and investors with a long term approach who can stomach declines in their portfolio of more than 50% are more like the women in the article. No I am not saying you are feminine, I mean that you have the right attitude to make money in the stock market.

Below is a brief abstract followed by the full article in Scribd format:

Theoretical models of financial markets built on the assumption that some investors 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. Thus, models of investor overconfidence predict that men will trade more and perform worse than women. Using account data for over 35,000 households from a large discount brokerage firm, we analyze the common stock investments of men and women from February 1991 through January 1997. Consistent with the predictions of the overconfidence models, we document that men trade 45 percent more than women and earn annual risk-adjusted net returns that are 1.4 percent less than those earned by women. These differences are more pronounced between single men and single women; single men trade 67 percent more than single women and earn annual risk-adjusted net returns that are 2.3 percent less than those earned by single women.

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Boys Will Be Boys