Learning By Trading
2010, Review of Financial Studies
Noah Stoffman, Amit Seru, Tyler Shumway
Using a large sample of individual investor records over a nine-year period, we analyze survival rates, the disposition effect, and trading performance at the individual level to determine whether and how investors learn from their trading experience. We find evidence of two types of learning: some investors become better at trading with experience, while others stop trading after realizing that their ability is poor. A substantial part of overall learning by trading is explained by the second type. By ignoring investor attrition, the existing literature significantly overestimates how quickly investors become better at trading.
Stoffman, Noah, Amit Seru, and Tyler Shumway (2010), "Learning by Trading," Review of Financial Studies, Vol. 23, No. 2, February, pp. 705-739.