Individual Investors and Volatility

75 Pages Posted: 17 Mar 2008 Last revised: 13 Mar 2013

See all articles by Thierry Foucault

Thierry Foucault

HEC Paris - Finance Department

David Alexandre Sraer

Princeton University; University of California, Berkeley

David Thesmar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2009


We show that retail trading activity has a positive effect on the volatility of stock returns. To identify this effect, we use a reform of the French stock market that triggers a drop in retail trading activity by raising the relative cost of speculative trading for retail investors. The daily return volatility of the stocks affected by the reform falls by twenty basis points (a quarter of the sample standard deviation of the return volatility) relative to other stocks. For affected stocks, we also find a significant decrease in the magnitude of return reversals and the price impact of trades. We argue that these findings are consistent with the view that some retail investors behave as noise traders.

Keywords: Idiosyncratic Volatility, Retail Trading, Noise Trading

JEL Classification: G14, G12, G11

Suggested Citation

Foucault, Thierry and Sraer, David Alexandre and Sraer, David Alexandre and Thesmar, David, Individual Investors and Volatility (June 1, 2009). Journal of Finance, Forthcoming, AFA 2009 San Francisco Meetings Paper, Available at SSRN: or

Thierry Foucault (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
(33)139679569 (Phone)
(33)139677085 (Fax)


David Alexandre Sraer

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

David Thesmar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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