University of New South Wales (UNSW) Professor Peter Swan and Online Trading Academy Challenge the Commonplace Misconception that Retail Traders and Investors Generally Lose Money.
Leading Educator of Retail Traders and Investors and Professor of Finance Spotlight Different Research into Retail Traders & Investors.
With the rising tide of interest in retail traders and investors, it is an important time to consider all sources of research into this increasingly important segment of the financial markets.
Having served over 80,000 students with lifelong trading and investing education over 20 years, Online Trading Academy is well placed to research the sub-segment of educated retail traders and investors, for which it has launched the OTA Research Center.
“Part of our purpose with the OTA Research center is to curate diverse sources of research which people can weigh up for themselves. An often quoted research study is that from Brad Barber and Terrence Odean entitled, “The Behavior of Individual Investors” (2013) which concludes that retail traders and investors generally lose money. Indeed, this was cited during the GameStop government hearings”, said Mike Richardson, President of Online Trading Academy. He went on to say, “Yet, a more recent study from Peter Swan, Wei Lu and Joakim Westerholm entitled, “Other People’s Money: The Trading Performance of Household Investors vs. Delegated Money Managers” (2016) using a very different research methodology showed the exact opposite. I was puzzled why this research seems to be missed and so I reached out to connect with Professor Peter Swan”.
The research methodology Professor Swan and his colleagues used was very different, called “Holding-Period-Invariant” (HPI) methodology, avoiding the biases of conventional “Calendar-Time” (C-T) methodology.
“The difference of methodology turns the conclusion on its head, from households performing worse than institutions using Calendar-Time (C-T) methodology to households performing better than institutions with Holding-Period-Invariant (HPI) Methodology”, said Professor Swan. He went on to say, “For more than 40 years now, the world has been greatly misled by Calendar-Time (C-T) research methodology that completely misrepresents the way in which investors think and act: the idea that investors aim to gain a return over some pre-specified period such as a day, a week, a month, or whatever calendar time period is specified. The reality is different, with investors deciding whether to either exit from that investment, retain, or buy more, depending on sale and purchase costs, the prospective returns from alternative investments or current and prospective returns from the investment already made. Any notional investment horizon belief held prior to the investment is now entirely irrelevant. Our Holding Period Invariant (HPI) methodology much better reflects that reality by analyzing round trip trades, which is simple to apply when you have the corresponding dataset.”
Professor Swan and his colleagues find that informed households shun the hype associated with rising prices promoted by trend-following institutional momentum traders utilizing other people’s money, in favor of being contrarian.
“Professor Swan’s research, methodology and perspectives align with our experience over so many years with so many students at Online Trading Academy,” Richardson explained. “Compared to their uneducated counterparties, educated retail traders and investors who are informed about contrarian methodologies can have a very different experience than commonplace perception and commonly cited research. These are the kinds of biases, misconceptions and myths that our OTA Research Center will be shining a light on progressively as we curate diverse sources of research, tap into our research capabilities and data and collaborate on new research. Our purpose is not to engage in the academic debate of who’s right and who’s wrong, just to allow people to be more informed in weighing it up for themselves.”
Visit OTA Research Center | Online Trading Academy to find out more and follow further releases of research data analysis.
Online Trading Academy (OTA) is a leader in financial education for people looking to build skills, evolve proficiency and develop confidence for trading and investing in the financial markets. OTA's proprietary and step-by-step Core Strategy methodology is designed to teach strategies to help traders and investors make smarter decisions aligned with their short-term and long-term financial goals. Students learn under the guidance of knowledgeable instructors, in an interactive classroom setting with extensive online education resources and a next-generation education, analysis, and trading platform called CliK. The courses are geared toward individual investors or traders, novice or experienced, who want to learn how to use similar tools and trading techniques as the professional traders on Wall Street. From a single location in Irvine, CA, Online Trading Academy is in its 24th year, has expanded to more than 40 worldwide education centers, and has served over 80,000 students with access to lifelong education who have rated their satisfaction at 94.4% from more than 200,000 post-class exit surveys. It all starts with a free introductory class, which over 500,000 people have attended.
The OTA Research Center collects, collates and comments upon public domain research and perspectives that it feels may provide interesting insights. This content is provided for information only and OTA makes no representations about its accuracy.