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Speculative retail trading and asset prices

journal contribution
posted on 2013-04-01, 00:00 authored by B Han, A Kumar
Abstract This paper examines the characteristics and pricing of stocks that are actively traded by speculative retail investors. We find that stocks with high retail trading proportion (RTP) have strong lottery features and they attract retail investors with strong gambling propensity. Furthermore, these stocks tend to be overpriced and earn significantly negative alpha. The average monthly return differential between the extreme RTP quintiles is -0.60%. This negative RTP premium is stronger among stocks that have lottery features or arelocated in regions where people exhibit stronger gambling propensity. Collectively, these results indicate that speculative retail trading affects stock prices.

History

Journal

Journal of financial and quantitative analysis

Volume

48

Pagination

377-404

Location

Cambridge, Eng.

ISSN

0022-1090

eISSN

1756-6916

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2013, Michael G. Foster School of Business, University of Washington

Issue

2

Publisher

Cambridge University Press