Let boys be boys, goes the old saying. But recent research suggests that when it comes to investing, maybe the girls should call the shots.
Women tend to trade less than men and, as a result, earn higher returns, according to Terrance Odean and Brad M. Barber, economists at the Graduate School of Management at the University of California, Davis. The pair examined the trading records of more than 35,000 customers of a large discount brokerage firm that wasn't identified."I'm not trying to start any bedroom fights," says Prof. Odean, a behavioral economist. Nonetheless, he says that his findings show "that women are better investors in one respect. They don't churn their accounts as much as men do."
Profs. Odean and Barber found that, on average, men trade 45 percent more than women. Single men turn out to be the most active traders, shuffling their holdings 67 percent more than single women do.
It isn't that women do a better job of picking stocks. Profs. Odean and Barber found that the stocks both men and women sell tend to outperform the ones they then buy. Men, however, are more likely than women to invest in riskier securities, such as small-company stocks.
On a risk-adjusted basis, men earn 1.4 percentage points less annually than women do, the study found. (The adjustment is done using a statistical formula that takes into account the fact that higher-risk stocks should produce higher returns to compensate for the added risk investors take.) Single men wind up even further behind: On average they earn 2.3 percentage points less each year than single women and about 0.6 percentage point less than married men.
Economists say the culprit may be overconfidence, a common flaw plaguing many investors. More so than women, men simply think they are better at investing than they actually are. Meir Statman, a professor of finance at California's Santa Clara University, says, "Men tend to think they control the world."
Overconfidence may be a good thing in many areas of life, says Prof. Odean, but "when it comes to trading stocks, it's a drawback because it incites you to too much activity and it's costly."
Overconfidence isn't a problem just for investors who do business with a discount broker. "Institutions trade a lot, too," says Richard H. Thaler, a professor of finance at the University of Chicago's graduate school of business.
To some degree, the differences between men and women could be temporary. "Some of the reluctance to invest in stocks or riskier stocks reflects a lack of familiarity that will go away," says Prof. Statman. Still, he doubts the gap will disappear. Men get a thrill from trading and "thrill-seeking is likely to be biologically based," he says.
Other recent research also suggests that women do as well, if not better, than men when it comes to another facet of investing -- managing their retirement accounts. That is a marked contrast to earlier studies that suggested that women were putting too much of their retirement funds into conservative fixed-income investments, a strategy that could leave them without adequate retirement funds.
Newer research, however, suggests that women are more likely to contribute to 401(k) and other retirement plans and to put more money in them. Women seem to be participating "at quite high rates," says Olivia Mitchell, a professor of insurance and risk management at the Wharton School of Business. "If you look at the economy as a whole, the area where participation in retirement plans has been dropping is actually among less-educated men, ages 25 to 44."
When it comes to allocating assets, women seem to act just like men, with one exception: They are less likely to invest in their own company's stock.
Men, for example, tend to invest pretty constantly in their own company's stock, no matter how much they earn, according to a study by benefits consultants Watson Wyatt & Co. that looked at 87 retirement plans covering nearly 235,000 workers. Men also tend to swap out of bonds and guaranteed investment contracts when they buy their employer's shares.
Women, on the other hand, tend to buy less of their own company's stock and to sell other stocks when they do, the study found. They also tend to buy more of their employer's shares when their incomes increase. Financial advisers say that's a sensible strategy because investors who earn more should have a higher tolerance for risk. In retirement plans that don't offer the employer's stock as an option, women put as much -- or even more -- of their assets than men in stocks.
"Women seem to act somewhat more independently and I'd say somewhat more rationally," says Sylvester J. Schieber, a co-author of the study and vice president of research at Watson Wyatt. "Buying company stock in your retirement plan is a relatively risky proposition. You're not diversifying risks because your paycheck and retirement are both tied up in your company."
Mr. Schieber says he doesn't know why women and men behave differently, but his "hunch" is that it can be traced back to the playground. "When most of today's workers were young, boys tended to play much more organized sports. There's a team phenomenon," he says. "Every guy on the bench is expected to be a participant and buy into the program. I don't think women had the same socialization."