Our findings are consistent with the hypothesis that there are a wide range of individual investors, from the foolish traders to the very sophisticated, Hirshleifer said.

Hirshleifer conducted the study with Joshua Coval of the Harvard Business School and Tyler Shumway of the University of Michigan.

Their study has appeared as an academic working paper at the website of the Social Science Research Network Electronic Library .

The researchers examined the trades of more than 113,000 accounts at a large discount brokerage firm between January 1990 and November 1996.

Results showed that the smart investors who consistently beat the market werent the only group that stood out. About 10 percent of investors did extremely poorly in their choices and underperformed the market about 23 percent a year annualized. The losses of these investors are far greater than the losses of the average individual investor, according to Hirshleifer.

The remaining investors the majority of those studied didnt do as poorly, but they still didnt beat the market when the costs of their transactions were calculated and included in the analysis.

Our findings are consistent with the hypothesis that there are a wide range of individual investors, from the foolish traders to the very sophisticated, Hirshleifer said.

In order to make sure that some investors didnt just get lucky with a few stock trades, the researchers also considered a subset of the larger group 16,668 accounts that had at least 25 trades during the study period. The results for this group were similar to those of the larger group.

In addition, the researchers found that investors who did best during the first half of the time period also tended to do best in the second half of the study. This suggests they did indeed have superior ability to pick stocks and not just a short-term lucky streak.

The researchers also used a variety of methods to make sure that the investors who did best didnt have insider information on a few companies that allowed them to make profitable trades. For example, in one analysis, Hirshleifer and his colleagues studied only trades in large and mid-cap stocks, where it is less likely that traders may have profitable information on multiple companies.

While it is possible that a few investors have inside information about a company or two, it seems doubtful that a large number of investors have access to inside information in a broad set of large companies, he said.

The results of the study cast doubt on the efficient market hypothesis (EMH), a theory which financial researchers have debated for years.

he EMH states that, because all investors theoretically have access to the same information, it should be impossible to consistently beat the market average. However, this study suggests some investors a small minority have a talent for finding opportunities in the stock market that elude most people.

It seems some investors do have superior skills that allow them to profit more than most, Hirshleifer said.

Contact: David Hirshleifer, (614) 292-5174; Hirshleifer.2@osu.edu

Written by Jeff Grabmeier, (614) 292-8457; Grabmeier.1@osu.edu