Familiarity Breeds Short-Termism

Investors exhibit a robust and systematic pattern of shortening their holding period in a stock on which they execute multiple round trip trades. On average, the holding period shortens by 11% with each additional round trip. I show this tendency to be short-termed is associated with reinforcement learning. Investors are more likely to shorten the holding period after a round trip where they could have realized a better return had they sold earlier. Investors become short-termed as they become more familiar with trading a stock.