The performance of amateur traders on a public internet site: a case of a stock-exchange contest

We analyze a very thorough data base, including all of the bid/ask orders and daily portfolio values of more than 600 on-line amateur traders from February 2007 to June 2009. These traders were taking part in a stock-exchange contest proposed by the French Internet stock-exchange site Zonebourse. More than 80% of traders lose relative to the market. Their relative average annual performance varies from -38% to -60%, depending on the method used. In absolute, more than 99% of traders lose and face drastic losses: on average, portfolio values fall from an initial value of 100 to a terminal value of 7 in the 29 months covered here. When we include the rewards offered by the contest, average performance becomes -13% a year. However, only two deciles continue to beat the market. From an initial value of 100 the final value is 28 including rewards, but 95% of traders still lose in absolute. There is no clear performance persistence for traders. Are the best traders just lucky then? Focusing on contest winners, the long-term transition analysis suggests a long-term probability of staying in the best decile which is greater than chance. We thus cannot reject a “star effect” of staying in the best decile. However, the great majority of amateurs do seem to be e-pigeons. Online trading may just be costly entertainment, like casino gambling.