All Guts, No Glory: Trading and Diversification Among Online Investors

24 Pages Posted: 24 May 2007


I explore cross-sectional portfolio performance in a sample containing 324,736 transactions conducted by 16,831 Swedish investors at an Internet discount brokerage firm during the period May 1999 to March 2002. On average, investors hold undiversified portfolios, show a strong preference for risk, and trade aggressively. I measure performance using a panel data model, and explain the cross-sectional variation using investors' turnover, portfolio size and degree of diversification. I find that turnover is harmful to performance due to fees, and is therefore more predominant among investors with small portfolios. I argue that the degree of diversification is a proxy for investor skill, and it has a separate and distinct positive effect on performance. Investors underperform the market by about 8.5% per year on average, of which half can be attributed to trading costs.

Suggested Citation

Anderson, Anders, All Guts, No Glory: Trading and Diversification Among Online Investors. European Financial Management, Vol. 13, No. 3, pp. 448-471, June 2007, Available at SSRN: or

Anders Anderson (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm

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