The Informational Role of Individual Investors in Stock Pricing: Evidence from Large Individual and Small Retail Investors

54 Pages Posted: 1 Mar 2014

See all articles by Hung-Ling Chen

Hung-Ling Chen

Shih Chien University

Edward H. Chow

National Chengchi University (NCCU) - Department of Finance and Banking

Cheng-Yi Shiu

National Central University at Taiwan - Department of Finance

Date Written: February 28, 2014

Abstract

Using a unique data set of complete trade records, we find that large individual investors are successful at picking stocks. Large individual investors’ correlated trades not only can move synchronous stock prices but also can positively predict future returns. More importantly, large individual investors tend to trade before major earnings announcements and large price changes, suggesting that they are able to exploit value-relevant information. In contrast to large individual investors, small retail investors’ correlated trades are inversely associated with synchronous and future stock returns, indicating that small retail investors are uninformed and naïve. The differential information content between large individual and small retail investors highlights the need to classify individual investors according to their investment amount when examining their role in stock pricing.

Keywords: Herding; individual investors; institutional investors; stock pricing

JEL Classification: G10; G11; G14

Suggested Citation

Chen, Hung-Ling and Chow, Edward Hsing-Yi and Shiu, Cheng-Yi, The Informational Role of Individual Investors in Stock Pricing: Evidence from Large Individual and Small Retail Investors (February 28, 2014). Asian Finance Association (AsianFA) 2014 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2402675 or http://dx.doi.org/10.2139/ssrn.2402675

Hung-Ling Chen

Shih Chien University ( email )

No.70, Dazhi St.,
Zhongshan Dist.,
Taipei, 104
Taiwan

Edward Hsing-Yi Chow

National Chengchi University (NCCU) - Department of Finance and Banking ( email )

64, Chih-nan Rd., Sec. 2, Mucha,
Taipei, 116
Taiwan
8862-2939-3091-81206 (Phone)
886-2-2939-3394 (Fax)

Cheng-Yi Shiu (Contact Author)

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan

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