By Matt Hall, Hill Investment Group, www.hillinvestmentgroup.com

Yes, academic evidence and our own observations have indicated that men and women tend to behave in significantly different ways when it comes to investment behavior, perhaps most notably when it comes to overconfidence in their abilities to outperform the market. By investigating the differences in behavior and the resulting returns, we can learn a lot about the types of decisions we should all be making as investors.

The financial arena is still dominated by male players, although even that may be shifting as women increasingly participate. An August, 2009 New York Times article noted that “there are more women controlling more wealth in the U.S. than ever before,” citing IRS statistics that women represent 43 percent of the wealthiest tier in the country ($1.5 million or more).

Whether men or women are more or less involved in their family’s wealth management, study after study has demonstrated the same thing over the years: women seem to exhibit better investment habits than men.

Brad Barber and Terrance Odean, of the University of California, Berkeley’s Haas School of Business, have done a series of landmark studies that focus on the intricacies of human behavior and its impact on investor performance. Their study, Boys Will Be Boys (Quarterly Journal of Economics, February 2001), looked at more than 35,000 households, and the main conclusion was that “there is a simple and powerful explanation for the high levels of counterproductive trading (i.e., trades that lowered rather than increased returns) in financial markets: overconfidence.”

Overconfident trading was higher in men than in women as evidenced by men’s annual portfolio turnover of 77 percent, versus 53 percent for women. The study also demonstrated that:

• The differences in behavior were even more pronounced between single men and single women.

• Although the women were the better performers, both men and women would have been better off if they had lowered their turnover.

Several additional surveys and investigations from the business world have substantiated the Odean/Barber study’s academic findings. An MSN Money article, “Why Women Make Better Investors,” provides a convenient summary of several of them:

• A Harris Poll for Charles Schwab found that women were twice as likely to agree that investing was “scary” (they were less overconfident). Eight-two percent of men surveyed expressed confidence in their investing ability, compared to women’s 52 percent.

• A survey by TD Waterhouse reached similar conclusions. They found that women were half as likely to check their portfolios daily and twice as likely to check only monthly, implying less trading.

• British financial and media technology company Digital Look conducted surveys in 2001 and 2005, analyzing 100,000 portfolios. Women outperformed men in both periods.

Returning to the Odean/Barber study, after crunching the numbers, they observed, “Men trade more than women and thereby reduce their returns more so than do women.” Investors would be well served to observe the positive investment habits that lead to less trades, and thus fewer misjudgments and expenses that detract from their portfolio’s bottom line.