Abstract
This paper examines the characteristics and pricing of stocks that are actively traded by speculative investors. We find that stocks with high retail trading proportion (RTP) have strong lottery features and they attract investors who are known to exhibit a strong propensity to gamble with stocks. High levels of RTP also reflect active trading by risk-seeking realization utility investors. Stocks whose trading are dominated by speculative investors tend to be overpriced and earn significantly negative alpha. The average return difference between the top and the bottom RTP quintiles is about -0.60% per month. This negative RTP premium is stronger among stocks that have lottery features or are located in regions in which people exhibit a stronger propensity to gamble. Collectively, these results indicate that speculative trading importantly affect stock prices.
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