Avoid trading during sharp market swings — don’t increase activity when the market is hottest
Researchers analyzed data from 40 million accounts on the Shanghai Stock Exchange covering July 2014 to December 2015. The bottom 85% of households, who traded frequently, ended up earning roughly 250 billion yuan less than those who simply held onto their shares. That amount equals about 30% of their initial portfolio value. During a calmer two-and-a-half-year period prior to this, the difference between active traders and passive holders was only 1% to 3%.
No direct expense. The real challenge is resisting the urg…
This study relied on daily transaction records from all Shanghai Exchange accounts, totaling nearly 40 million…
No direct expense. The real challenge is resisting the urge to trade more when everyone else seems to be making money.
This study relied on daily transaction records from all Shanghai Exchange accounts, totaling nearly 40 million. The analysis period spanned 18 months, during which the Shanghai Composite Index rose over 150% before peaking at 5,166.35 points on June 12, 2015, then dropping 40% by year’s end. Households were grouped by initial portfolio size; the smallest group made up 85% of all accounts, while the largest comprised just 0.5%. Both groups started with similar total equity — 880 billion and 808 billion yuan respectively. The former group lost 250 billion yuan due to excessive trading, whereas the latter earned 254 billion yuan. These figures represent roughly 28% and 31% of their respective starting portfolios, respectively. In contrast, during a calmer period from mid-2012 to mid-2014, the same comparison showed a gap of only 1% to 3%. On average, households traded their holdings about every three weeks during this volatile phase — nearly 18 times per year.
An L, Lou D, Shi D (2022). Wealth redistribution in bubbles and crashes. Journal of Monetary Economics 126:134-153. https://doi.org/10.1016/j.jmoneco.2022.01.001；同文作者公开的工作论文稿（2021 年 10 月，本条数字按它逐字核对）. https://personal.lse.ac.uk/loud/AnLouShi.pdf
Open source linkThis research does not advise against stock ownership altogether. It compares outcomes between active and passive investors within the same market environment. The money lost by smaller accounts went to larger individual investors, who accounted for roughly 90% of total trading volume during this period. No official statistics confirm the often-cited claim that “90% of retail investors lose money,” so this figure isn’t used here. Turnover rates provide useful context: U.S. households, as noted in item 15, trade only about three-quarters as often per year. This information is not intended as investment advice.