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|Title||The Impact of Restricted Trading Hours on Trading Performance: An Experimental Study|
|Institution||University of Zurich|
|Faculty||Faculty of Economics, Business Administration and Information Technology|
|Number of Pages||111|
|Abstract Text||This study experimentally tests the influence of a time restriction on trading activity and trading performance in a virtual trading environment. Because excessive trading negatively influences portfolio performance as suggested by Barber & Odean (2000), this study examines whether restricted trading hours may reduce the negative effects of excessive trading and positively affect trading performance. Furthermore, this study analyzes the factors that may induce excessive trading, in particular overconfidence and risk propensity measures, which are the two most discussed predictors of excessive trading in related literature. Finally, the impact of trading activity and restricted trading hours on trading performance is investigated. The experimental study considers 48 participants mainly from the University of Zurich and the Swiss Federal Institute of Technology in Zurich (ETHZ), of which 32 participants completed the three-month experiment period on a virtual trading platform. In order to test the impact of restricted trading hours, the participants are divided into two groups, of which one group is only allowed to trade during one hour per day, whereas the other group does not have any time restriction. The analysis focuses on the trading activity and the trading performance of the two defined groups. The performance of the participants at the end of the three-month experiment period is adjusted by a benchmark and any commissions in connection with the transactions as well as interests paid and received, which allows the analysis of the performance of the two groups without any transaction cost effects. The evaluation of the participant data reveals that there is a tendency that the group with restricted trading hours exhibits less trading activity and performs better than the group without time restriction, regardless of the measure of trading activity. Moreover, a regression analysis shows that trading activity has a significant negative effect on trading performance. Thus, it can be concluded that a time restriction of one hour per day has a positive effect on trading performance because excessive trading can be reduced. The direct effect of restricted trading hours on trading performance is positive but rather weak. In addition, the study does not find a significant gender differences regarding trading activity or trading performance. On the other hand, men have a higher overconfidence score than women. Substantial gender differences regarding risk propensity are not at hand.|