The Impact of Individual Investor Trading on Stock Returns

Zhijuan Chen, William T. Lin, Changfeng Ma and Zhenlong Zheng

Emerging Markets Finance and Trade, 2013, vol. 49, issue S3, 62-69

Abstract: In this paper, we study the impact of the trading of individual investors on short-horizon stock returns from 2005 to 2006 using a unique data set provided by the Taiwan Stock Exchange. We examine the predictability of stock returns based on net individual trading by using the portfolio-sorting approach and the Fama-MacBeth regression method. Contrary to previously offered conclusions, we find that the imbalance in individual trading negatively predicts future stock returns on a stock-by-stock basis, which indicates that individual investors can be viewed as noise traders to some extent. At the same time, using the principal component analysis, we find that the noise trading of individuals is not systematic.

Keywords: individual investors; noise traders; stock returns; systematic (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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