Tracking Retail Investor Activity
58 Pages Posted: 13 Aug 2016 Last revised: 24 Sep 2019
Date Written: June 26, 2019
We provide an easy way to use recent, publicly available U.S. equity transactions data to identify marketable retail purchases and sales. Individual stocks with net buying by retail investors outperform stocks with negative imbalances, and the magnitude is approximately 10 basis points over the following week. Less than half of order imbalance’s predictive power can be attributed to order flow persistence and potential liquidity provision. The rest is consistent with the hypothesis that retail investors are informed. We provide supportive evidence that retail investors are mainly informed about firm-level news, and that they are likely to have valuable private information.
Keywords: retail investor, price improvements, return predictability
JEL Classification: G14, G11
Suggested Citation: Suggested Citation