Trading in style: Retail investors vs. institutions
No 12462, CEPR Discussion Papers from C.E.P.R. Discussion Papers
We examine the comparative trading performance of retail investors using an exhaustive sample of trades made by all investors in a stock market. Retail investors trade systematically at better prices than institutions, especially domestic institutions. We also find evidence of retail investors having a comparative advantage when trading stocks in their preferred trading style. These findings are consistent with retail investors rationally utilizing their trading flexibility and information made available to them. Based on a population of retail trades, our findings challenge the stereotype arising from earlier studies that retail investors are noise traders.
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