Informed Retail Investors: Evidence from Retail Short Sales
41 Pages Posted: 31 Aug 2011 Last revised: 12 Jul 2016
Date Written: June 1, 2016
Abstract
Our study suggests that despite the enforcement of insider trading laws, there are still some investors trading on their private information. Using account-level information, we show that some retail investors seem to be informed about particular stocks. When they sell short these stocks, they earn an alpha of 15%; when they purchase these stocks, they earn an alpha of 27%. Other short sales and purchases by the same investor do not earn significant alpha. These informed trades are rare and further evidence suggest that these informed retail trades are motivated by private information rather than trading skill.
Keywords: short selling, informed trading, retail investors
JEL Classification: G14
Suggested Citation: Suggested Citation
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