The Investment Scientist

How Do Men and Women Invest Differently

Posted on: May 26, 2020

Berkeley professor Terry Odean published an interesting paper in the Quarterly Journal of Economics in 2001 about how men and women invest differently. It was an empirical study based on stock transaction data in tens of thousands of accounts over a seven year period provided by a brokerage firm.

These investment accounts were either opened by a man or a woman, and were single or joint accounts. Thus there were four account types. An interesting phenomenon emerged from the study: the more a man is in control of an account, the worse the performance. (See net return vs benchmark.)

Here the benchmark is not any composite index, it is simply the return that resulted from no trades being made throughout the whole year. 

One thing is very clear, both men and women reduce their account returns by trading instead of just doing nothing . (That’s why I’d rather err on the side of inaction while managing clients’ investments.) Furthermore, the return reduction is largest for man-single accounts, followed by man-joint accounts. Women-single accounts have the smallest return reduction, followed by women-joint accounts.


How did Professor Odean explain this result? Both men and women are prone to overconfidence, and thus trading too much. But men are much more so, especially when they are not moderated by women. You can look at the account turnover ratio as well, there you can see men overall trade 50% more frequently than women.
So what is my point? In my advisory business, I have observed that if my client is a couple, more often than not the man is in charge, while the woman is the quieter partner. This study suggests that women should speak up.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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