Investor Clienteles and Habitat-Based Return Comovements
University of Miami - School of Business Administration
Jeremy K. Page
Brigham Young University
Oliver G. Spalt
Tilburg University - Department of Finance
February 14, 2010
AFA 2011 Denver Meetings Paper
This study investigates whether retail and institutional investors concentrate their trading among certain stock categories (i.e., habitats) and whether their trading activities generate return comovements among stocks within those habitats. Our results indicate that both retail and institutional investors are more likely to trade stocks with similar characteristics. Further, investors' trades are correlated with retail trades exhibiting stronger correlations. Using different measures of comovements, including geography- and price-based comovements, we demonstrate that correlated retail trading generates stronger comovement patterns while informed institutional trading weakens them. Comovements are stronger among stocks that have lottery features, are located in regions where people enjoy gambling, or are held by retail investors with strong gambling propensity. Across time, trading correlations and comovements are amplified during periods of greater market-level uncertainty and stronger consumer sentiment. Overall, these results are consistent with the habitat-based view of return comovements proposed in Barberis, Shleifer, and Wurgler (2005).
Number of Pages in PDF File: 66
Date posted: August 27, 2009 ; Last revised: April 15, 2010
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