Tracking Retail Investor Activity
86 Pages Posted: 13 Aug 2016 Last revised: 3 Nov 2020
Date Written: August 31, 2020
We provide an easy method to identify purchases and sales initiated by retail investors using recent, widely available U.S. equity transactions data. Individual stocks with net buying by retail investors outperform stocks with negative imbalances by approximately 10 basis points over the following week. Less than half of the predictive power of marketable retail order imbalances is attributable to order flow persistence; contrarian trading (a proxy for liquidity provision) and public news sentiment explain little of the remaining predictability. There is suggestive (but only suggestive) evidence that retail marketable orders contain firm-level information that is not yet incorporated into prices.
Keywords: retail investor, price improvements, return predictability
JEL Classification: G14, G11
Suggested Citation: Suggested Citation