The correlated trading and investment performance of individual investors

Individual investors tend to trade in the same direction as other individual investors in the same broker branch. The more pronounced an individual investor’s herding behavior, the worse his/ her investment performance. We find that the limit orders of herding investors have a lower execution ratio, a longer time-to-execution, and a higher probability of being picked up by institutional investors, indicating that their orders are subject to the pick-off risk as they face fierce execution competition and tend to become stale after submissions. Finally, we find that individual investors learn from experience and herd less in the future.