Investor Clienteles and Habitat-Based Return Comovements

66 Pages Posted: 27 Aug 2009 Last revised: 15 Apr 2010

Alok Kumar

University of Miami - School of Business Administration

Jeremy K. Page

Brigham Young University

Oliver G. Spalt

Tilburg University - Department of Finance

Date Written: February 14, 2010

Abstract

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).

Suggested Citation

Kumar, Alok and Page, Jeremy K. and Spalt, Oliver G., Investor Clienteles and Habitat-Based Return Comovements (February 14, 2010). AFA 2011 Denver Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1461855 or http://dx.doi.org/10.2139/ssrn.1461855

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

Jeremy K. Page

Brigham Young University ( email )

Marriott School of Management
685 TNRB
Provo, UT 84602
United States
801-422-7173 (Phone)

HOME PAGE: http://marriottschool.byu.edu/directory/details?id=19364

Oliver G. Spalt

Tilburg University - Department of Finance ( email )

Department of Finance
Tilburg University
Tilburg, 5000 LE
Netherlands
+31 13 466 3545 (Phone)

HOME PAGE: http://www.oliverspalt.com

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