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http://ssrn.com/abstract=1371780
 
 

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Speculative Retail Trading and Asset Prices


Bing Han


University of Toronto, Rotman School of Management

Alok Kumar


University of Miami - School of Business Administration

November 10, 2011

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

Abstract:     
This paper examines the characteristics and pricing of stocks that are actively traded by speculative retail investors. We find that stocks with high "retail trading proportion" (RTP) have strong lottery features and they attract retail investors who are known to exhibit a strong propensity to gamble with stocks. High levels of RTP also reflect active trading by risk-seeking "realization utility" investors. Stocks whose trading are dominated by speculative retail investors tend to be overpriced and earn significantly negative alpha. The average return difference between the top and the bottom RTP quintiles is about -0.60% per month. This negative RTP premium is stronger among stocks that have lottery features or are located in regions in which people exhibit a stronger propensity to gamble. Collectively, these results indicate that speculative retail trading importantly affect stock prices.

Number of Pages in PDF File: 52

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Date posted: April 2, 2009 ; Last revised: April 20, 2012

Suggested Citation

Han, Bing and Kumar, Alok, Speculative Retail Trading and Asset Prices (November 10, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1371780 or http://dx.doi.org/10.2139/ssrn.1371780

Contact Information

Bing Han
University of Toronto, Rotman School of Management ( email )
Toronto, Ontario M5S 3E6
Canada
4169460732 (Phone)
Alok Kumar (Contact Author)
University of Miami - School of Business Administration ( email )
514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)
HOME PAGE: http://moya.bus.miami.edu/~akumar
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