Economics at your fingertips  

Is individual trading priced in stocks?

Paul Moon Sub Choi and Joung Hwa Choi

Journal of International Money and Finance, 2018, vol. 85, issue C, 76-92

Abstract: Individuals have long been suspected of being noise traders. We seek empirical evidence of this and suggest the individual trading weight as a proxy for noise trader risk. Based on a common stock sample of non-financial firms listed on the Korea Stock Exchange, we find that returns are higher for firms that are more densely traded by individual investors controlling for Fama and French’s (1993) three factors of market, firm size and valuation, and Carhart’s (1997) momentum factor. Furthermore, the excess return of portfolios sorted by the proportion of individual traders is an influential risk characteristic even under bull and bear market conditions. Additionally, tests based on average correlations and principal component analyses reveal that individuals generate systematic noise in the Korean stock market. Lastly, on a cross-country check, the individual trading factor is shown to affect stock returns in Taiwan as well.

Keywords: Noise trader risk; Individual trading weight; Dense-minus-scarce factor (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-12-10
Handle: RePEc:eee:jimfin:v:85:y:2018:i:c:p:76-92