Speculative Retail Trading and Asset Prices
52 Pages Posted: 2 Apr 2009 Last revised: 20 Apr 2012
Date Written: November 10, 2011
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.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Cross-Section of Volatility and Expected Returns
By Andrew Ang, Robert J. Hodrick, ...
-
The Cross-Section of Volatility and Expected Returns
By Andrew Ang, Robert J. Hodrick, ...
-
By Amit Goyal and Pedro Santa-clara
-
Stocks as Lotteries: the Implications of Probability Weighting for Security Prices
By Nicholas Barberis and Ming Huang
-
Stocks as Lotteries: The Implications of Probability Weighting for Security Prices
By Nicholas Barberis and Ming Huang
-
Equity Portfolio Diversification
By Alok Kumar and William N. Goetzmann
-
Equity Portfolio Diversification
By Alok Kumar and William N. Goetzmann
-
Idiosyncratic Risk and Security Returns
By Yexiao Xu and Burton G. Malkiel
-
High Idiosyncratic Volatility and Low Returns: International and Further U.S. Evidence
By Andrew Ang, Robert J. Hodrick, ...
-
High Idiosyncratic Volatility and Low Returns: International and Further U.S. Evidence
By Xiaoyan Zhang, Andrew Ang, ...