Fool's mate: What does CHESS tell us about individual investor trading performance?
P. Joakim Westerholm () and
Accounting and Finance, 2017, vol. 57, issue 4, 981-1017
We investigate the shortâ€ term relation between individual investor trading and stock returns on the Australian Securities Exchange. Stocks heavily bought by individual investors underperform stocks heavily sold over the subsequent three days, with respective returns on to a longâ€“short portfolio of âˆ’93, âˆ’67 and âˆ’12 basis points on days one, two and three. Individuals underperform in small and midâ€ size stocks when they trade passively using limit orders waiting for the market price to move in their favour. Individuals underperform in large stocks when they trade aggressively using marketable orders. Foreign institutions gain from taking the opposite side of individual trades. We present an information asymmetryâ€ based explanation for the findings.
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