Speculative retail trading and asset prices

Bing Han, Alok Kumar

Research output: Contribution to journalArticle

77 Citations (Scopus)

Abstract

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.

Original languageEnglish (US)
Pages (from-to)377-404
Number of pages28
JournalJournal of Financial and Quantitative Analysis
Volume48
Issue number2
DOIs
StatePublished - Apr 2013

Fingerprint

Retail
Asset prices
Proportion
Investors
Lottery
Propensity
Gambling
Stock prices
Pricing
Premium

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

Speculative retail trading and asset prices. / Han, Bing; Kumar, Alok.

In: Journal of Financial and Quantitative Analysis, Vol. 48, No. 2, 04.2013, p. 377-404.

Research output: Contribution to journalArticle

@article{8e022a7516f649029cbed09713ab903b,
title = "Speculative retail trading and asset prices",
abstract = "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.",
author = "Bing Han and Alok Kumar",
year = "2013",
month = "4",
doi = "10.1017/S0022109013000100",
language = "English (US)",
volume = "48",
pages = "377--404",
journal = "Journal of Financial and Quantitative Analysis",
issn = "0022-1090",
publisher = "Cambridge University Press",
number = "2",

}

TY - JOUR

T1 - Speculative retail trading and asset prices

AU - Han, Bing

AU - Kumar, Alok

PY - 2013/4

Y1 - 2013/4

N2 - 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.

AB - 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.

UR - http://www.scopus.com/inward/record.url?scp=84881009718&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84881009718&partnerID=8YFLogxK

U2 - 10.1017/S0022109013000100

DO - 10.1017/S0022109013000100

M3 - Article

VL - 48

SP - 377

EP - 404

JO - Journal of Financial and Quantitative Analysis

JF - Journal of Financial and Quantitative Analysis

SN - 0022-1090

IS - 2

ER -