saar - Individual Investor Trading and Stock Returns Ron...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Individual Investor Trading and Stock Returns Ron Kaniel, Gideon Saar, and Sheridan Titman First version: February 2004 This version: May 2006 Ron Kaniel is from the Faqua School of Business, One Towerview Drive, Duke University, Durham, NC 27708 (Tel: 919-660-7656, ron.kaniel@duke.edu ). Gideon Saar is from the Johnson Graduate School of Management, Cornell University, 455 Sage Hall, Ithaca, NY 14853 (Tel: 607-255-7484, gs25@cornell.edu ). Sheridan Titman is from the McCombs School of Business, University of Texas at Austin, Austin, TX 78712 (Tel: 512-232-2787, Sheridan.Titman@mccombs.utexas.edu ). We wish to thank Shuming Liu for dedicated research assistance. We are grateful for comments from Robert Battalio, Simon Gervais, John Griffin, Larry Harris, Joel Hasbrouck, Roni Michaely, Terry Odean, Maureen O’Hara, Lei Yu and seminar (or conference) participants at Cornell University, Duke University, INSEAD, London Business School, New York University, University of Notre Dame, Rice University, Yale University, and the American Finance Association meetings. This research began while Saar was on leave from New York University and held the position of Visiting Research Economist at the New York Stock Exchange. The opinions expressed in this paper do not necessarily reflect those of the members or directors of the NYSE.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Individual Investor Trading and Stock Returns Abstract This paper investigates the dynamic relation between net individual investor trading and short-horizon returns for a large cross-section of NYSE stocks. We use a unique dataset that enables us to determine the buy and sell volume of individual investors on the NYSE during a four-year sample period (2000–2003). We find that individuals buy after the prices of stocks decline in the previous month and sell after prices go up. We document positive excess returns in the month following intense buying by individuals and negative excess returns after individuals sell. These patterns are consistent with the notion that risk-averse individuals provide liquidity to meet institutional demand for immediacy. We further examine the relation between net individual trading and the weekly return reversal that has been documented in the literature. Our results reveal that net individual trading predicts future returns, and that the information content of past trading by individuals is distinct from that of past return or past volume. Furthermore, net individual trading predicts weekly returns in the post-2000 era for stocks of all sizes, while past return seems to have lost its predictive power for all but small stocks over the same time period.
Background image of page 2
1. Introduction For a variety of reasons, financial economists tend to view individuals and institutions differently. In particular, individuals are said to have psychological biases and are often thought of as the proverbial noise traders in the sense of Kyle (1985) or Black (1986).
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/08/2011 for the course CIS 625 taught by Professor Michaelkearns during the Spring '12 term at Pennsylvania State University, University Park.

Page1 / 58

saar - Individual Investor Trading and Stock Returns Ron...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online