References (43)


Citations (16)



Individual Investors and Volatility

Thierry Foucault

HEC Paris - Finance Department

David Alexandre Sraer

University of California, Berkeley; Princeton University

David Thesmar

MIT Sloan

June 1, 2009

Journal of Finance, Forthcoming
AFA 2009 San Francisco Meetings Paper

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.

Number of Pages in PDF File: 75

Keywords: Idiosyncratic Volatility, Retail Trading, Noise Trading

JEL Classification: G14, G12, G11

Open PDF in Browser Download This Paper

Date posted: March 17, 2008 ; Last revised: March 13, 2013

Suggested Citation

Foucault, Thierry 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: https://ssrn.com/abstract=1105470 or http://dx.doi.org/10.2139/ssrn.1105470

Contact Information

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)
HOME PAGE: http://thierryfoucault.com/

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
United States

David Thesmar
MIT Sloan ( email )
77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
16172259767 (Phone)
Feedback to SSRN

Paper statistics
Abstract Views: 2,529
Downloads: 478
Download Rank: 44,751
References:  43
Citations:  16