Noise Trader Risk, Odd-Lot Trading, and Security Returns
Posted: 7 Sep 1999
Date Written: July 1994
Using the ratio of odd-lot purchases to sales as a measure of small investor sentiment, this research documents that small firms do well (poorly) when small investors are optimistic (pessimistic). In contrast, large firms are generally unaffected by the sentiment of small investors. From 1941 through 1989, 6.5% of the time-series variation in the small firm premium can be explained by this measure of investor sentiment. Furthermore, the ratio of odd-lot purchases to sales serves as a complement to, rather than substitute for, other measures of investor sentiment including the discounts of closed-end funds and the ratio of mutual fund sales to redemptions.
JEL Classification: G12
Suggested Citation: Suggested Citation