Abstract
We study the role of retail investors in the gradual diffusion of information in financial markets. We show that retail investors tend to trade as contrarians after large earnings surprises, and such contrarian trading contributes to sluggish price adjustment and to momentum. Retail traders are particularly active for small loser stocks. As a robustness check, we double sort stocks in quintiles based on momentum and the strength of retail contrarian trading, and find that the momentum phenomenon arises only in the 4th and 5th quintile of contrarian trading intensity. We further investigate the timing and the horizon of the traders, the role of segmentation in stock ownership, and the role of attention and browsing behavior in generating contrarian trading. Alternative hypotheses, such as the disposition effect, and stale limit orders, do not explain the phenomenon.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
