Are All Individual Investors Created Equal? Evidence from Individual Investor Trading around Securities Litigation Events

Abstract

This study examines the trading behavior of individual (retail) investors around securities litigation disclosure events. We hypothesize and find that less informed investors (low-income investors and investors in non-professional occupations) purchase earlier in the class period relative to more informed investors who tend to sell later in the class period. We also find that more informed investors achieve higher returns, or at least incur fewer losses, than less informed investors during the class period. Less informed investors are, therefore, more likely to suffer greater class action damages than more informed investors from their presumed reliance on allegedly false information.