Investors significantly reduce the potential gains they could theoretically achieve due to their tendency to overtrade.

"Do investors trade too much? A laboratory experiment" (Detailed summary of the article by Batista et al., 2015):
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➡️1. Experimental Design
•Participants traded in an experimental market with a 1% chance at each step that could end at a random time (. The underlying asset's fundamental value increases periodically by 2%; volatility is around 10% level )t ≈ 3 months equivalent (.
•Theoretically, a participant who makes 0 transactions and only applies a "buy-and-hold" strategy could exit with a gain of over 600%.
A price-impact model was added to the trial through a market maker: buy orders increase the market price, while sell orders decrease it. This means that active traders influence the price with their own transactions.

➡️2. Key Findings
1. Excessive transaction

•The average gain at the end of the first session was only ~%0.75; a profit of %92 was achieved with decreasing transactions in repeated sessions.
2.Learning over time
•The same individuals made fewer transactions when they rejoined the trial, performance significantly climbed but did not reach the theoretically ideal %600.
3. The relationship between risk propensity and behavior
•Risk-averse individuals made more transactions and their average final wealth was lower.
4.Alignment of expectations and behavior
•Participants' trading decisions aligned with the expectations of "buy low, sell high."
•It was observed that they traded in line with price expectations.

•Although the participants were not in communication with each other, significant synchronization was observed during transaction times.
•However, a classic "panic crash" did not occur; small clusters of buying and selling were observed.

➡️3. Conclusion – Thesis Verified✅
People tend to make excessive transactions instead of holding.
•This behavior clearly leads to a loss of money due to price impact.
Participants are constantly trading to beat the market, but this often means deviating from theoretical returns.
As the transactions concentrate among individuals with high risk appetite, the final profit decreases.
•Although some learning occurs as the experiment is repeated, it is difficult to reach the "optimal strategy."