Measuring speculation beyond day trading and bets on lottery-like stocks

Werner De Bondt, Rudy De Winne and D’Hondt, Catherine ()
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Werner De Bondt: DePaul University
D’Hondt, Catherine: Université catholique de Louvain, LIDAM/LFIN, Belgium

No 2024009, LIDAM Reprints LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: We offer a new metric of stock market speculative intensity: the proportion of share purchases that are swiftly reversed, i.e., sold within a short time window. An example of this metric is a 14-day trading horizon. We use it to identify retail traders who aim for quick profits. Based on a vast set of trading accounts in Belgium (2003-2012), we observe that the scale of quick round-trip trading is far above what would be seen with a single focus on day trading. Simply put, amateur speculation is not limited to day traders. Measuring speculative trading through quick round-trip transactions delivers a variety of insights. Amateur speculators are more likely to be male, younger, with lower sophistication and lower levels of wealth. They hold concentrated portfolios and focus their efforts on only a few stocks at a time. They earn low returns, and they are prone to the disposition effect. They are liable to bet on lottery-like stocks, and their passion for trading is persistent.

Keywords: Amateur speculators; retail traders; short-term trading; day trading; gambling (search for similar items in EconPapers)
JEL-codes: G11 G40 (search for similar items in EconPapers)
Pages: 44
Date: 2024-09-22
Note: In: International Review of Financial Analysis, 2024, vol. 96(A), 103632
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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlr:2024009

DOI: 10.1016/j.irfa.2024.103632

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