Retail Trading and Momentum Profitability

85 Pages Posted: 30 Nov 2019 Last revised: 12 Feb 2020

Date Written: November 14, 2019


Monthly momentum returns increase monotonically across quintile portfolios of stocks sorted by retail trading participation with a top-minus-bottom spread of 1.42% (t-statistics = 3.46). Stocks that are heavily traded by retail investors exhibit lottery-like features such as low prices, high idiosyncratic volatilities/skewness, and high past maximum returns. Using lottery characteristics to proxy for the extent of retail trading, future momentum profits monotonically increase in the cross-sectional lotteryness of stocks over a 77-year back-testing period for which retail trading data is unavailable. Further analysis shows that lottery-like stocks exhibit stronger comovements that amplify momentum profits.

Keywords: Retail trading, momentum, lottery-like stocks

JEL Classification: G11, G12, G14, G40

Suggested Citation

Chung, Ling Tak Douglas, Retail Trading and Momentum Profitability (November 14, 2019). Available at SSRN: or

Ling Tak Douglas Chung (Contact Author)

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623

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