The Aggregate Behaviour of Individual Investors

52 Pages Posted: 29 Apr 2004

See all articles by Andrew Jackson

Andrew Jackson

Vinva Investment Management; London Business School

Date Written: July 29, 2003

Abstract

Behavioural models generally require that the investment decisions of irrational investors aggregate in a systematic way. Using a unique Australian dataset of individual investor trades I investigate the plausibility of this assumption. I find that aggregate individual investor trades do indeed exhibit strong systematic patterns, including negative feedback trading and substantial persistence. In addition the weekly cross-sectional net trades of a large number of independent retail brokerage firms are contemporaneously correlated to a remarkable extent. Thus the aggregation assumption appears plausible.

However I do not find that the net trades of retail investors consistently predict future returns in a negative fashion. In fact over the period 1991-2002, the net trades of full-service brokerage clients actually positively forecast future short-term market and cross-sectional returns. While small investors do act in a highly systematic fashion, their actions may not, at least in the short run, be classed as irrational.

Keywords: Individual Investors, Small Investors

Suggested Citation

Jackson, Andrew, The Aggregate Behaviour of Individual Investors (July 29, 2003). Available at SSRN: https://ssrn.com/abstract=536942. or http://dx.doi.org/10.2139/ssrn.536942

Andrew Jackson (Contact Author)

Vinva Investment Management ( email )

L13 10 Bridge Street
Sydney, 2000
Australia

HOME PAGE: http://www.vinva.com

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
2,104
Abstract Views
8,303
Rank
13,530
PlumX Metrics